Trusts and estates have been allowed a variety of miscellaneous itemized deductions. However, the Tax Cuts and Jobs Act (TCJA) has changed these deductions.
Miscellaneous itemized deductions (MIDS) are generally costs that would be incurred by individuals as well as estates and trusts. MIDS have historically been deductible on both individual and trust tax returns to the extent that they exceed the 2 percent of Adjusted Gross Income. The TCJA has suspended these deductions for tax years 2018-2025. So, how does this impact your client’s trust?
Many costs will still be deductible. In general, if an individual would not incur the cost, it is deductible. Those include:
- Fiduciary fees not associated with investment advice
- Appraisal fees incurred for the administration of a trust or estate
- Probate fees
- Bond premiums
- Legal notices
- Fiduciary accountings
- Income distribution deduction
Many costs will no longer be deductible by a trust. In general, if the cost could also be incurred by an individual, it would not be deductible. These include:
- Investment advisory fees—except for fees incurred to implement a specialized investment strategy; distinguish between normal fees versus these extraordinary fees
- Appraisal fees (unless they are incurred in the administration of a trust or an estate)—
- oAn appraisal taken due to the death of the taxpayer is deductible
- oAn appraisal taken due to a bank request is not nondeductible
- Property ownership costs for nontrade or business property—i.e., utilities, insurance, etc.
- oIf the trust rents out a property, these costs would be deductible to offset the rental income
- oMortgage interest and property taxes ($10,000 state and local tax limitation applies) are still deductible
- MIDS from partnerships and S Corps
- Excess deductions on termination of an estate or trust
- Safe deposit box rental
If you wish to discuss the impact of these deductibility rules on a particular trust or estate situation, please contact Yeo & Yeo.