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Four things to know about IRS guidance on estates and trusts

The Internal Revenue Service (IRS) recently issued some tips for estates and trusts that claim tax deductions. The proposed regulations focus on how estates and trusts determine adjusted gross income.

Why is this important?

The Tax Cuts and Jobs Act resulted in the inability to deduct miscellaneous itemized deductions from December 2017 through January 2026. This directly impacted income tax returns for trusts and estates.

What do taxpayers need to know from the IRS’ proposed regulations?

It appears this was not what lawmakers had intended. As a result, the agency has proposed some changes. If approved, four take-aways from the regulations include:

  • Costs. In general, the Tax Code expects estates and trusts to compute adjusted gross income just like an individual. However, the IRS states trusts and estates can deduct costs paid or incurred for the administration of the estate or trust.
  • Exemption. The Tax Code also allows for a deduction for personal exemptions of estates or non-grantor trust.
  • Distribution. The proposal would also allow trusts to take deductions for distribution of current income.
  • Accumulation. The IRS also allows deductions for trusts accumulating income.

The IRS provided some examples for additional guidance within the proposed regulations.

Are these rules final?

No. The agency is currently going through a comment period. During this time, anyone that disagrees with the proposed regulations or has additional suggestions can make an official comment. The agency will consider these comments and may make additional changes. We will provide an update once the rules are finalized.

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