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IRS Clarifies Effect of Tax Law Changes

As noted elsewhere on this site, the Tax Cuts and Jobs Act eliminated miscellaneous itemized deductions for individuals.

Tax professionals have been wondering how that would affect similar deductions taken on estate and trust income tax returns for 2018.

Per a recent article in The Tax Advisor,  pending IRS regulations will clarify that estates and trusts can continue to deduct "Section 67(e)" expenses on their income tax returns. (IRS Notice 2018-61)

("Expenses that are paid or incurred in the administration of an estate or trust, and that would not have been incurred if the property were not held in such an estate or trust, are deductible under Sec. 67(e)(1). ")

This includes "... costs paid for tax preparation fees for most returns, appraisal fees, and certain fiduciary expenses, as outlined in Regs. Sec. 1.67-4."

The article goes on to explain: "Costs that are not deductible under this section are those that customarily would be incurred by a hypothetical individual holding the same property, such as ownership costs (e.g., homeowners association fees, insurance, and maintenance)."

It is worth noting that "Investment management and advisory fees charged under the normal course of asset management continue to be an itemized deduction and therefore will be disallowed as a deduction under Sec. 67(g)."

(Clear as mud, right?)

Bottom line: estates and trusts can continue to deduct tax preparation fees and other "Section 67(e)" expenses on their returns.

Stay tuned for further developments...

As always, please contact me to discuss how this may or may not apply to you before taking any action on any information presented here or elsewhere on this site.