IRS finalizes regulations for estates and non-grantor trusts

The Internal Revenue Service released final regulations Monday to offer guidance on deductions for estates and non-grantor trusts, clarifying that certain deductions aren’t to be considered miscellaneous itemized deductions.

The Tax Cuts and Jobs Acts of 2017 forbids individuals, estates and non-grantor trusts from claiming miscellaneous itemized deductions for any taxable year starting after Dec. 31, 2017, and before Jan. 1, 2026.

The final rules issued Monday by the IRS clarify that the following deductions are allowable, however, in calculating adjusted gross income and are not miscellaneous itemized deductions:

  • Deductions for costs paid or incurred in connection with the administration of the estate or trust that wouldn’t have been incurred if the property weren’t held in such estate or non-grantor trust.
  • The deduction pertaining to the personal exemption of an estate or non-grantor trust.
  • The distribution deductions for trusts distributing current income.
  • The distribution deductions for trusts accumulating income.

The final regs also offer guidance on deciding the character and amount of, along with the manner of allocating, excess deductions that beneficiaries succeeding to the property of a terminated estate or non-grantor trust can claim on their individual income tax returns.