IRS Clarifies Estate and Trust Expenses Not Subject to Miscellaneous Itemized Deduction Suspension


The Treasury Department and the IRS plan to issue regulations clarifying that certain estate and nongrantor trust expenses remain deductible and are not subject to the miscellaneous itemized deductions suspension. As added by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), Code Sec. 67(g) generally provides that miscellaneous itemized deductions subject to the 2-percent-of-adjusted-gross-income floor are suspended and may not be deducted for tax years beginning after 2017 and before 2026.

Under Code Sec. 67(e), the adjusted gross income of an estate or trust is generally computed in the same manner as that of an individual, except that the following are treated as allowable in arriving at adjusted gross income:

  • deductions for costs that are paid or incurred in connection with estate or trust administration that would not have been incurred if the property were not held in the estate or trust; and
  • deductions allowable under Code Sec. 642(b) (personal exemption deduction for estate and trusts), Code Sec. 651 (deduction for trusts distributing current income only), and Code Sec. 661 (deduction for estate and trusts accumulating income or distributing corpus).

Code Sec. 67(e) removes estate or trust administration expenses described above from the category of itemized deductions, and instead treats them as above-the-line deductions allowable in determining adjusted gross income. As a result, the suspension of the deductibility of miscellaneous itemized deductions does not affect the deductibility of such payments.

Caution. Note, however, that an expense that an individual would commonly or customarily incur does fall under the Code Sec. 67(g) suspension, and cannot be deducted by an estate or trust during the suspension period.

The Treasury Department and IRS intend to issue regulations clarifying that:

  • estates and nongrantor trusts can continue to deduct expenses described in Code Sec. 67(e), including the appropriate portion of a bundled fee, in determining the estate or nongrantor trust’s adjusted gross income during the suspension period; and
  • deductions classified in Code Sec. 67(b) as not being “miscellaneous itemized deductions,” and the deductions in Code Sec. 67(e), continue to remain outside the definition of “miscellaneous itemized deductions” and are unaffected by Code Sec. 67(g).

Further, the Treasury Department and the IRS intend to issue regulations and request comments regarding the effect of Code Sec. 67(g) on the ability of a beneficiary to deduct amounts comprising Code Sec. 642(h)(2) excess deduction upon the termination of a trust or estate, in light of Code Sec. 642(h) and its corresponding regulation.