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Estates and trusts final year excess deductions

New IRS law under section 67 (g) provides as follows:
“(g) Suspension for taxable years 2018 through 2025… no miscellaneous itemized deduction shall be allowed for a taxable year beginning after December 31, 2017, and before January 1, 2026.”
In July 2018 the Office of Chief Counsel issued Notice 2018-61 which states that the Treasury Department and the IRS intend to issue regulations providing clarification of the effect of newly enacted section 67 (g) regarding the deductibility of certain expenses incurred by estates and nongrantor trusts; and requests comments on that new law along with and issues relating to section 642(h) (2).

Section 642 (h) (2) provides:
If on the termination of an estate or trust, the estate or trust has…
(2) for the last taxable year of the estate or trust deductions (other than the deductions allowed under subsections (b) or (c)) in excess of gross income for such year, then such carryover or such excess shall be allowed as a deduction, in accordance with regulations prescribed by the Secretary, to the beneficiaries succeeding to the property of the estate or trust.

The Notice further provides on page 6 that “The Treasury Department and the IRS intend to issue regulations clarifying that estates and non-grantor trusts may continue to deduct expenses described in section 67(e)(1) and amounts allowable as deductions under section 642(b), 651 or 661, including the appropriate portion of a bundled fee, in determining the estate or non-grantor trust’s adjusted gross income during taxable years, for which the application of section 67(a) is suspended pursuant to section 67(g). Additionally, the regulations will clarify that deductions enumerated in section 67(b) and (e) continue to remain outside the definition of “miscellaneous itemized deductions” and thus are unaffected by section 67(g).
No regulations regarding the above have been issued as of yet.

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