Notice 2018-61 informs us that the IRS will promulgate regulations regarding Code § 67(g), which was added to the Internal Revenue Code by the Tax Cuts and Jobs Act on December 22, 2017, and Code § 67(g)’s effect, if any, on the deductibility of certain expenses under Code § 67(b) and (e) incurred by estates and non-grantor trusts.
Code § 67(g) provides that no miscellaneous itemized deductions will be allowed for tax years 2018 through 2025. But, Notice 2018-61 provides that certain estate and non-grantor trust expenses will remain deductible and will not be subject to the miscellaneous itemized deductions suspension.
Pending regulations, estates and trust may rely on Notice 2018-61 for taxable years beginning January 1, 2018.
Under Code § 67(e), the adjusted gross income of an estate or trust is computed in the same manner as that of an individual, except that the following are treated as allowable in arriving at adjusted gross income:
- The deductions for costs that are paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in the estate or trust; and
- The deductions allowable under Code § 642(b) (personal exemption deduction for estates and trusts), Code § 651 (deduction for trusts distributing current income only), and Code § 661 (deductions for estates or trusts accumulating income or distributing corpus).
These deductions are therefore removed from the category of itemized deductions (and, as such, are not miscellaneous itemized deductions) and are treated as above-the-line deductions allowable in determining adjusted gross income. The suspension of the deductibility of miscellaneous itemized deductions under Code § 67(g) does not affect the deductibility of payments under Code § 67(e)(1). Further, nothing in Code § 67(g) affects the ability of an estate or trust to take a deduction under Code § 67(b).
Remember that if an individual would ordinarily incur the expense, then it is not subject to Code § 67(e) and is subject to the miscellaneous itemized deduction suspension.
Net operating loss carryovers and capital loss carryovers on the termination of an estate or trust are, like the expenses described above, above-the-line deductions and thus are not subject to the miscellaneous itemized deduction suspension.
CCH Tax Group. IRS Clarifies Estate and Non-grantor Trust Expenses Not Subject to Miscellaneous Itemized Deduction Suspension (Notice 2018-61). July 16, 2018.