Excess deduction on termination- 1041

[grandmabee]

I thought that is was no longer in effect starting 2018.  But ATX program is taking it to Schedule A as misc. deduction line 16 from the K-1 input

I think this must be a program error.  I will call ATX Monday and keep this updated.  Unless I missed where it came back.

 

 

[BulldogTom]

Please see my post below on SALT caps and final year deductions.   I am asking the same questions about how the software is treating this.

Tom
Modesto, CA

[jklcpa]

There may be a place within the program to tell it to not carry that amount to line 16, because I think the instructions for 1041 still say this is a deduction and to enter it.

Back in 2018 the IRS came out with notice 2018-61 that tried to address the issue to which the AICPA wrote a letter requesting that IRS and Treasury issue regulations as additional guidance.  To date, as far as I am aware, the IRS and Treasury have not responded or issued any further guidance.

Tom, I was thinking of you too as I respond to this topic.  Sorry to not be able to provide more definitive answers.

https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/20181031-comment-letter-on-notice-2018-61.pdf

https://www.irs.gov/pub/irs-drop/n-18-61.pdf

https://www.law.cornell.edu/cfr/text/26/1.642(h)-2

[Abby Normal]

The Sch A instructions say only what's listed can be deducted and it doesn't mention excess expenses from a trust or estate. It says to see pub 529.

[Randall]

There was mention on another forum that the IRS was going to make a decision about moving these deductions to the other miscellaneous category.  Even if they do, many will still be stopped out by the higher standard deduction.

[grandmabee]

Yes, but I still have most of my clients that itemize for state, which would help alot.

[Sara EA]

The IRS hasn't decided whether or not to allow the excess deductions yet.  I think it's best to continue entering the expenses in the event they eventually get moved to the not 2% area.  I did that last year with PMI even though the deduction had expired.  This year when I encounter a client with PMI I check last year's return to see if an amendment is in order.  So far I identified just one, the others still wouldn't meet the higher standard deduction.  The IRS hasn't updated the 2018 software yet, the software companies can't until the IRS does, and we don't do prior year amendments during tax season anyway.  At least the numbers are in there.  I'm doing the same with the 2% deductions on the 1041.

[grandmabee]

Yes, But ATX is moving it to the misc deduction NOT subject to 2%, therefor taking the deduction on Schedule A.

[jklcpa]

1 hour ago, Sara EA said:

The IRS hasn't decided whether or not to allow the excess deductions yet.  

Actually the IRS did try to address this with notice 2018-61 that I included in my post above and that's when the AICPA asked again for clarification of deductions for beneficiaries.  Also, as Abby stated, the IRS instructions are clear that it's not deductible.

 

1 hour ago, Sara EA said:

...continue entering expenses....  I did that last year with PMI even though the deduction had expired. 

Your software may have allowed an entry, mine did not as the entry field for PMI was eliminated, and the actual Sch A line 13 was elminated from the form altogether.  It WAS on line 13 in 2017 and prior, and the PMI that is back now is on line 8d starting again in 2018 thanks to the retroactive application of the law. 

 

1 hour ago, Sara EA said:

The IRS hasn't updated the 2018 software yet, the software companies can't until the IRS does....

This is also not true.  IRS has already updated Sch A for 2018 to again include the PMI and put in on line 8d as it is for the 2019 year, and my 2018 software was updated several weeks ago. I did prepare an amended return for someone with PMI in 2018 earlier this month.  

Most of my clients that paid PMI exceed the phase out and have no tax benefit anyway except for the one above that was single in 2018 and had a portion of hers be deductible before phasing out. She couldn't use it in 2019 because she got married and the combined income greatly exceeded the top end of the phase out.

 

[DANRVAN]

1 hour ago, jklcpa said:

AICPA asked again for clarification of deductions for beneficiaries. 

AICPA specifically asked that the that Excess deduction on termination become an above the line deduction.  There has been no response one way or the other.