The 1041-K1 federal entry to should flow to the Illinois (IL) return. The IL begins with the federal adjusted gross income (AGI). For federal purposes this is an adjustment to income because it is the final year of the estate. This means it would reduce you federal income by the amount shown on your Form 1041-K1. Complete the federal K1 entry first.
IL Schedule M Instructions - The instructions are unclear as to whether you would add those back to the income since it has been subtracted out as an adjustment to total income for your federal return.
There may be no requirement to file the WI tax return if the income from the estate is less than $2,000.
Box 11, Code A—Excess Deductions on Termination—Section 67(e) Expenses
If this is the final return of the estate or trust, and there are excess deductions on termination that are section 67(e) expenses reported to you as a beneficiary, you may deduct the excess deductions shown in box 11, code A, as an adjustment to income. Report this amount on Schedule 1 (Form 1040), Part II, line 24k. See Final Regulations - TD9918 for examples of allowable excess deductions on termination of an estate or trust.
Excess deductions on termination occur only during the last tax year of the trust or decedent’s estate when the total deductions (excluding the charitable deduction and exemption) are greater than the gross income during that tax year. Only the beneficiary of an estate or trust that succeeds to its property is allowed to deduct that entity’s excess deductions on termination. A beneficiary who doesn’t have enough income in that year to absorb the entire deduction can’t carry the balance over to any succeeding year.
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