Allowable Miscellaneous Deductions

[CovingtonCPA]

According to the 2020 IRS Publication 529 (Miscellaneous Deductions - page 9), you can deduct Excess Deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust.

It doesn't look like this deductibility happens, however, in my ProSeries Basic software.  I have entered excess deductions with codes A, B, C, and D on the Schedule K-1 worksheet (estate & trust).  The item coded B goes to the Schedule A Line 16 worksheet and appears on a line that says "Deductions related to portfolio income, misc. deductions, & excess deductions on termination from Schedule(s) K-1."  But the amount isn't going to Line 16 on the Schedule A, which I would expect based upon the Publication 529 that I cited above.

Am I missing some additional coding that is needed?  Or is this something that the ProSeries Basic software doesn't handle?  I would appreciate some direction about how to resolve this matter since it will change the result for the client's itemized deduction total.

[Just-Lisa-Now-]

Ive seen people mention this earlier in the season, I would have thought the program would be updated by now.

@IntuitAustin   any word on this ?

[IntuitRebecca]

Hi @CovingtonCPA ,

The final year deduction for box 11, code B, is not fully automated the way that codes A, C, and D are.

The amount reported in code B should be entered on the appropriate line of the Schedule A - the fiduciary should provide a statement describing the types of deductions. My understanding is that under TD 9918 these non-miscellaneous deductions retain their character, so they may not always need to go to line 16, and ProSeries doesn't have enough info to populate the deductions in the right place automatically.

The area on the Schedule A line 16 worksheet where you're seeing the amount transferred is actually part of the worksheet that's for state use only, to calculate miscellaneous deductions subject to the 2% limitation for those states who don't conform to the Tax Cuts and Jobs Act. The 2% miscellaneous deductions can't be taken on federal returns anymore.

- Rebecca

[CovingtonCPA]

My client's final year deductions for box 11, code B, relate partially to real estate taxes and partially to miscellaneous deductions not subject to the 2% floor which would be fully deductible if the estate/trust was still active; hence, my understanding of the final regulations that you cite is that they will be fully deductible for my client.  A few days ago, I spoke with a ProSeries technical team member, and the best advice she could give me was to override Schedule A, Line 16 to report the deduction and disable error checking when e-filing.  However, if I do this and submit the return, it gets rejected. 

[dhoyt]

Sorry to resurect an old thread but I'm not sure it was ever resolved and I have a similar problem. When entered on K-1 worksheet, Line 11B Non-miscellaneous Itemized deductions gets carried to miscellaneous itemized deductions on schedule A, and therefore is not dedcutible. Any idea where these deudcutions should instead be listed?

Also are all non-miscellaneous deductions deductible, or are they only dedcutible if they are a deduction that would normally be an allowable Schedule A deduction? For example, Real Estate Taxes could be deductible on Schedule A since real estate taxes are normally deductible. But what about utilities, home insurance, postage, etc that would not normally be deductible on schedule A? Because they are coming from a Trust that has been terminated, are they deductible in some way on schedule A? I've been reading and re-reading the various publications and opinions on this and I'm not understanding it so any help would e appreciated.

[BobKamman]

Good question. I don't have to deal with it until next year.  A better source than Pub 529 is the Schedule K-1 beneficiary instructions.  Wouldn't they require the non-2% items to be broken out from the 2% ones?

Box 11, Code B—Excess
Deductions on Termination
Non-Miscellaneous Itemized
Deductions
If this is the final return of the estate or
trust, and there are excess deductions on
termination that are non-miscellaneous
itemized deductions reported to you as a
beneficiary, you may deduct the excess
deductions shown in box 11, code B, on
the applicable line on Schedule A (Form
1040). The fiduciary will provide you with a
statement of allowable deductions. See
Final Regulations - TD9918, for examples
of allowable excess deductions on
termination of an estate or trust. A
beneficiary who doesn’t have enough
income in the tax year to absorb the entire
deduction can’t carry the balance to any
succeeding year.
Note. Section 67(g) suspends
miscellaneous itemized deductions
subject to the 2% floor for tax years 2018
through 2025. Therefore, miscellaneous
itemized deductions are not deductible as
excess deductions on termination. Consult
your state taxing authority for information
about deducting miscellaneous itemized
deductions on your state tax return.

[taxiowa]

Why would utilities and home insurance normally be deductible on Schedule A?  I must be new at this tax thing.

[dhoyt]

I believe you misread my question. I said those items would NOT normaly be deductible. My question is are they deductible because they are pass through, non-miscellaneous items from a trust in the year of its termination. And if so, what is the "applicable line on schedule A" to deduct them?

[sjrcpa]

Items that would not normally be deductible remain nondeductible in the year of termination.