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Level 2
March 16, 2020
Solved

K1 Excess Deductions on Termination

  • March 16, 2020
  • 3 replies
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On Box 11 of the K1 we have Code A which is excess deductions on termination. Since this closes the estate can the beneficiary's share be deducted and if so where on the return?

    Best answer by Anonymous_

    @tas wrote:

    ......can the beneficiary's share be deducted......?


    Probably not because the deductions are typically those that were formerly miscellaneous itemized deductions subject to the 2% AGI floor and which have now been eliminated by tax reform (the TCJA).

    3 replies

    Level 15
    March 16, 2020

    @tas wrote:

    ......can the beneficiary's share be deducted......?


    Probably not because the deductions are typically those that were formerly miscellaneous itemized deductions subject to the 2% AGI floor and which have now been eliminated by tax reform (the TCJA).

    Level 2
    October 9, 2020

    Proposed Regs issued May 2020 now permit deduction as a write-in on Schedule 1, Part II, line 22. Great. Now has anybody figured a way to override the total on line 22 so that the correct amount flows through to the rest of the return?

    Level 15
    October 10, 2020

    @FormerTaxPro wrote:

    Proposed Regs issued May 2020 now permit deduction as a write-in on Schedule 1, Part II, line 22. Great. Now has anybody figured a way to override the total on line 22 so that the correct amount flows through to the rest of the return?


    This is probably not going to happen in the online versions of TurboTax, but you can accomplish this task by using Forms Mode (in a desktop version), opening the Form 1040 or Form 1040-SR Worksheet, scrolling down and entering the figure in the Other Adjustments to Income Smart Worksheet section (see screenshot).

     

    Level 2
    January 15, 2021

    Thank you for this reply!  

     

    I was struggling trying to force "ED67(e)" and an amount directly into Schedule 1, Line 22 until I zoomed in and took a close and saw that it should be done via the Smart Worksheet.

    Level 3
    January 6, 2021

    Here's the IRS text on this issue:

     

    Under Proposed Regulations 113295-18 PDF, an excess deduction on termination of an estate or trust allowed in arriving at adjusted gross income (Internal Revenue Code (IRC) section 67(e) expenses) is reported as an adjustment to income on Forms 1040, 1040-SR, and 1040-NR; non-miscellaneous itemized deductions are reported, as applicable, on Schedule A (Form 1040 or 1040-SR) or Schedule A (Form 1040-NR); and miscellaneous itemized deductions are not deductible. Taxpayers may rely on the proposed regulations for tax years of beneficiaries beginning after 2017 and before the final regulations are published.

    For tax year 2019, an excess deduction for IRC section 67(e) expenses is reported as a write-in on Schedule 1 (Form 1040 or 1040-SR), Part II, line 22, or Form 1040-NR, line 34. On the dotted line next to line 22 or line 34 (depending on which form is filed), enter the amount of the adjustment and identify it using the code “ED67(e)”. Include the amount of the adjustment in the total amount reported on line 22 or line 34.

    For tax year 2018, an excess deduction for IRC section 67(e) expenses is reported as a write-in on Schedule 1 (Form 1040), line 36, or Form 1040-NR, line 34. On the dotted line next to line 36 or line 34, (depending on which form is filed), enter the amount of the adjustment and identify it using the code “ED67(e)”. Include the amount of the adjustment in the total amount reported on line 36 or line 34.

    Level 15
    January 6, 2021

    @wmbaker3 wrote:

    Here's the IRS text on this issue:....

    Under Proposed Regulations 113295-18 PDF....


    Below is a partial screenshot of the K-1 that was redesigned with a new code for non-miscellaneous itemized deductions.

     

     

    NOTE that not much has changed regarding costs incurred by the estate or trust that would normally have been incurred by a hypothetical individual; such costs are still treated as miscellaneous itemized deductions and are not currently deductible (under current tax law).

    Level 3
    January 7, 2021

    So even though they created a Box 11 (B)  for this, is it still subject to the 2% limitation so it might be deductible if it exceeds ? Or, is it non-deductible no matter what ?

    I thought I read that they would let heirs take the deduction from a terminated estate.

    Thanks,  WB