Excess Deductions 1041

[alyle99]

I am working on a final 1041 where the only income is C.D. interest which is about 2k.  The fees associated with the close of of the estate is about 18K so there are excess deductions on the K-1's.  Are the beneficiaries able to use those deductions on their own 1040's and if so what line would those be added to?

Thank you

[George4Tacks]

Be sure the file is marked FINAL.
Enter those fees in the appropriate Deductions category. More detail and I might be able to help. The excess should show up on the k-1 for each beneficiary. It would go from the k-1 to their separate 1040

[alyle99]

Thank you. I am just curious on what line the beneficiaries would put that deduction their personal 1040's and if it would actually benefit them?

[Just-Lisa-Now-]

They would be a misc itemized deduction on Sch A of the 1040 which were taken away with TCJA in 2018, the beneficiaries states may still allow those types of deductions but the federal no longer does.

[abctax55]

Consider this in determining how to treat those amounts:

https://www.irs.gov/forms-pubs/reporting-excess-deductions-on-termination-of-an-estate-or-trust-on-f...

[alyle99]

Hi,

I think I agree with your solution. However the post above this states that they are misc itemized deduction and there is no benefit for the beneficiaries.  However if you add the excess deductions to line 22 on on Schedule 1 there would be benefits to the beneficiaries because it is an adjustment to income. Any thoughts on that?

[Just-Lisa-Now- · Accepted solution]

This says under Proposed Regulations, did they get finalized?     ProSeries still throws them from the K-1 to Sch A Misc Itemized Deds.

[alyle99]

It appears it is still in the works!

Thank you

[abctax55]

"...Taxpayers may rely on the proposed regulations for tax years of beneficiaries beginning after 2017 and before the final regulations are published."

Per the IRS notice I attached - you can used the proposed regulation until a final one is issued.

AND - only "you" the preparer, after consultation with the preparer of the F 1041, can determine if the excess deductions qualify to be taken *above the line* per § 67(e).  To not research the issue further is a disservice to your client.