My K-1 has line 11 Final Year Deductions. It is not being transferred except as a State Tax adjustment. Why isn't it a Federal tax deduction?

[Anonymous_ · Accepted solution]

"Why isn't it a Federal tax deduction?"

That is the manner in which TurboTax is programmed. Since miscellaneous itemized deductions are no longer deductible on Schedule A, the program presumes that all excess deductions on termination constitute miscellaneous itemized deductions subject to the 2% floor and, hence, are not deductible.

Guidance has been requested on this issue but, it appears, very little has been forthcoming.

See https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/20181031-comment-letter-o...

See also https://www.irs.gov/pub/irs-drop/n-18-61.pdf

If some or all of the expenses (from the total on Line 11A) are not subject to the 2% AGI floor, and you know the amount, then you can enter that figure directly on Line 16 of Schedule A, but you will have to do an override and then print and mail your return. 

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Starting with 2018 tax returns, amounts entered in Box 11 with a Code of 'A' are for information purposes only. Taxpayers can no longer claim as a Miscellaneous Deductions subject to 2% of Adjusted Gross Income any such deduction, including excess deductions allowed a beneficiary on termination of an estate or trust. Publication 529 - Miscellaneous Deduction.

[Anonymous_]

First of all, nowhere in Publication 529 is it stated that "amounts entered in Box 11 with a Code of 'A' are for information purposes only" nor does that publication specifically mention "excess deductions allowed a beneficiary on termination of an estate or trust".

However, you have officially highlighted the issue; there is nowhere to properly deduct those excess deductions on termination that are NOT SUBJECT to the 2% floor yet IRC §?67(e) and Treas. Reg. §1.67-4 specifically reference the full deductibility of costs paid by an estate or non-grantor trust that are not subject to the 2% floor.

Therefore, the IRS needs to provide guidance on this issue since there is an ambiguity.