How can I enter Form K-1 box 11b non-miscellaneous deductions from my mom's estate on my 1040 Schedule A?

[lowprofile]

The instructions for the estate Form K-1 are clear that you are to enter passed-through non-miscellaneous deductions on the appropriate line on Form 1040 Schedule A.  (We are talking about things like estate probate fees and legal advertising. There are also reportable state & local and property taxes on the K-1 I received, but I'm already over the $10k limit for state and local tax deductibility so those don't appear to matter.)

The instructions for Schedule A list a defined set of "other itemized deductions", and these don't appear to be included.  Moreover, Turbotax seems to limit line 16 to a specific set of items other than these.

How should I enter these legitimate deductions from my mom's estate on my Schedule A?

[tagteam · Accepted solution]

The fiduciary (executor in this instance, most likely) should have provided you with a statement concerning the deductions and the code on your K-1 may actually be wrong. 

if you need to enter any final year deductions on Schedule A of your return note the following:

If this is the final return of the estate or trust, and there are excess deductions on termination that are non miscellaneous itemized deductions reported to you as a beneficiary, you may deduct the excess deductions shown in box 11, code B, on the applicable line of Schedule A (Form 1040). The fiduciary will provide you with a statement of allowable deductions. See Final Regulations - TD9918 for examples of allowable excess deductions on termination of an estate or trust. A beneficiary who doesn’t have enough income in the tax year to absorb the entire deduction can’t carry the balance to any succeeding year. 

Note. Section 67(g) suspends miscellaneous itemized deductions subject to the 2% floor for tax years 2018 through 2025. Therefore, miscellaneous itemized deductions are not deductible as excess deductions on termination. Consult your state taxing authority for information about deducting miscellaneous itemized deductions on your state tax return.

See https://www.irs.gov/pub/irs-pdf/i1041sk1.pdf

[tagteam]

The final regulations appear at the site below:

https://www.federalregister.gov/documents/2020/10/19/2020-21162/effect-of-section-67g-on-trusts-and-...

[lowprofile]

Yes, thanks.  I found that text as well.  But what is "the applicable line" on Schedule A, and how can I get TurboTax to accept my input to it? 

My K1 box 11b identifies 4 specific Non-miscellaneous itemized deductions:  S&L income taxes, property tax, probate fees and legal advertising.

I would have thought it was line 16... but TurboTax thinks otherwise.

[DianeW777]

The property tax would be allowed with other property taxes however as you pointed out the threshold has already been met so there is no deduction for those taxes.

As pointed out by @tagteam, the Tax Cuts and Jobs Act (TCJA) has eliminated miscellaneous deductions that were limited to only the excess over 2% of the adjusted gross income (AGI). (2018-2025 and then the law is set to revert back unless changed)

The only remaining miscellaneous deductions allowed are:

1. Qualified disaster losses
2. Gambling losses (gambling losses include, but aren't limited to, the cost of non-winning bingo, lottery, and raffle tickets), but only to the extent of gambling winnings reported on Schedule 1 (Form 1040), line 8b.
3. Casualty and theft losses of income-producing property from Form 4684, lines 32 and 38b, or Form 4797, line 18a.
4. Federal estate tax on income in respect of a decedent.
5. A deduction for amortizable bond premium (for example, a deduction allowed for a bond premium carryforward or a deduction for amortizable bond premium on bonds acquired before October 23, 1986).
6. An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument (for example, a Treasury Inflation-Protected Security).
7. Deduction for repayment of amounts under a claim of right if over $3,000. See Pub. 525 for details.
8. Certain unrecovered investment in a pension.
9. Impairment-related work expenses of a disabled person.
   1. Schedule A, Line 16 Instructions

If they do not fit into one of these categories they are not deductible.

[tagteam]

The following are the only allowable deductions on Line 16 of Schedule A.

• Gambling losses (gambling losses include, but aren't limited to, the cost of non-winning bingo, lottery, and raffle tickets), but only to the extent of gambling winnings reported on Schedule 1 (Form 1040), line 8b.

• Casualty and theft losses of income-producing property from Form 4684, lines 32 and 38b, or Form 4797, line 18a.

• Federal estate tax on income in respect of a decedent.

• A deduction for amortizable bond premium (for example, a deduction allowed for a bond premium carryforward or a deduction for amortizable bond premium on bonds acquired before October 23, 1986).

• An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument (for example, a Treasury Inflation-Protected Security).

• Deduction for repayment of amounts under a claim of right if over $3,000. See Pub. 525 for details.

• Certain unrecovered investment in a pension.

• Impairment-related work expenses of a disabled person.

See https://www.irs.gov/instructions/i1040sca#en_US_2022_publink100073879

[tagteam]

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@lowprofile wrote:

My K1 box 11b identifies 4 specific Non-miscellaneous itemized deductions:  S&L income taxes, property tax, probate fees and legal advertising.

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Yes, it does and that is why I questioned as to whether all of the expenses were properly entered on Line 11 with a B code. 

S&L income taxes and property tax would be entered on Schedule A as such and belong on Line 11 with a B code. However, I am not convinced that expenses such as probate fees and legal advertising (the latter presumably requisite notification per court order or statute) should have a B code. In fact, I believe they should be coded with an A which would allow an adjustment on a 1040 rather than an itemized deduction.

In any event, you should request clarification from the executor, administrator, or other party responsible for preparing the estate's 1041.

[lowprofile]

Thank you for looking into this. 

Yes, the advertising was per legal requirement, as was the probate fee, and approved by the Court.  Counsel for the estate assured us that these were proper, non-miscellaneous expenses required by the State, and not subject to the 2% limitation.

You see my dilemma.  The K-1 instructions direct me to report these costs on the appropriate line of Schedule A, and the Schedule A instructions would appear to say otherwise. 

[tagteam · Accepted solution]

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@lowprofile wrote:

You see my dilemma. 

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Yes, indeed I do and it appears to be a function of improper coding. If the costs you mentioned were listed on Line 11 with an A code, you would be making an adjustment on Schedule 1 of your 1040 (i.e., deducting the fees in full from your other income).

The confusion may be in the terminology. Of coure, the costs referred to are not miscellaneous deductions, but they do not belong on Schedule A merely because they are not miscellaneous deductions. The costs are 67(e) expenses and, as a result, do not belong on Schedule A.

[lowprofile]

Thanks.  I guess I'll need to take it up with the Executor -- me.

The estate 1041 has been filed.  It doesn't seem worthwhile to revisit it and regenerate the K-1.

[tagteam · Accepted solution]

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@lowprofile wrote:

The estate 1041 has been filed.  It doesn't seem worthwhile to revisit it and regenerate the K-1.

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No, it doesn't seem worthwhile at all, particularly if the figure is relatively small.

Otherwise, you could just enter the costs discussed as adjustments on Schedule 1, Line 24k.

[ddthomas63]

I'm having the same issue.  My husband received a K-1 for his parent's trust on 4/18/23 after I had filed our tax returns.  The K-1 also has an amount on line 11 with code B and description just says "Other Deductions Not Subject to 2%".  I have no idea what to do with this.  Turbo Tax did not carry it to Schedule A and I don't know how to force it.

[tagteam]

See https://www.irs.gov/pub/irs-pdf/i1041sk1.pdf

You need to contact the fiduciary (trustee) who should be able to provide you with a statement.

@ddthomas63 

[spirited]

I have all of the info. I need re: final trust K-1 box 11B  but the online TT Premier version states I must manually enter the 11B info. Unfortunately, the online version does not give a way to directly enter on the applicable forms even through TT prints on the forms in Print Preview an instruction to manually enter on the forms. Very frustrating!! 

[tagteam]

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@spirited wrote:

..........Unfortunately, the online version.......

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Get rid of the online version and buy a desktop version. Contact Support for a refund.