Carry Forward of Deductions for Trust (deceased)

[tgfirst]

For 2022, our Trust (for Father deceased Oct 2021) will have $4K of interest income, and $10K of attorney fees (paid on 31 Aug), therefore $6K of unused deduction for 2022.

We expect his $5K final month rebate of his Federal Pension from OPM (U.S. Office of Personnel Management) to be finally paid in 2023 (with a 2023 1099-R), after more than a 14 month delay due to OPM federal backlogs.

•  The 14+ delay (federal backlog) forces the $5K income into 2023.  Otherwise, had it been processed in 2022 (full year to do so), the $10K attorney fee would have fully offset it.

Can we carry forward the 2022 $6K remainder attorney fee deduction to 2023 to cover the 2023 1099-R income? 

Are there other options? 

Or, are we forced to pay trust taxes in 2023 on the $5K income, solely because of the excessive OPM federal backlogs?

[Anonymous_ · Accepted solution]

You should absolutely seek guidance from a local tax professional.

Regardless, you cannot carry a deduction (in excess of income) forward to a succeeding tax year.

However, what you might be able to do is make the 2022 1041 the final trust return, distribute the deduction on the K-1(s) as a final year deduction (i.e., distribute it out so the beneficiary(ies) can use the loss), and then treat the pension as IRD (income in respect of a decedent - that the beneficiary(ies) report directly on Form 1040).