Thx for the response. I'm assuming that the investment expenses are subject to the 2% floor. The Reg you site addresses expenses not subject to the 2% floor.  It is necessary to allocate the expense, for state purposes (in the case of my trust, California), between taxable and tax exempt income. The portion allocate to taxable income then is subject to the 2% floor calculation.  The investment expense was reported on the 1099-DIV.  Thus, I entered into on the Dividends screen, line 6.  On the Other Deductions screen I indicated that I want to allocate between taxable and exempt income. Yet, when I look at the state return the allocation has not been done.