A new IRS proposed regulation brings welcome news to beneficiaries of estates and non-grantor trusts.
Beneficiaries will now be able to deduct expenses in excess of income in the final year of the trust or estate. The deductibility of these expenses had been eliminated by the Tax Cuts and Jobs Act of 2017 (TCJA) for taxable years beginning after December 31, 2017, and before January 1, 2026.
The new proposed regulation is retroactive, allowing beneficiaries who were in the final year of the trust or estate in 2018 to amend their returns and claim these valuable deductions.
Net operating losses, capital losses and other expenses in excess of income will retain their character and flow through to the individual’s personal return as above-the-line deductions. Real estate taxes not allocated to a trade or business and excess charitable deductions will flow through as itemized deductions.
Unlike pre-TCJA tax law, the deductions will not be subject to a 2% AGI limitation, making this an even greater tax savings vehicle.