Recent IRS Regulation concerning Excess Deductions on Termination of Estates

[tagteam]

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@luke622 wrote:

.....when the excess payment is subsequently refunded by the state, the feds are just going to see that as income to be taxed next year. 

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That will not necessarily be the case:

Taxpayers who are impacted by the SALT limit—those taxpayers who itemize deductions and who paid state and local taxes in excess of the SALT limit—may not be required to include the entire state or local tax refund in income in the following year.

[StarGirl18]

I am trying to enter this in the 2019 amended return.  Any idea how I can do this?  I tried the screen shot suggestion above, but it does not follow thru to 1040 SR?  I am stumped!

[StarGirl18]

Did not work for me.  Yes you can enter it that way, but it still doesn't generate a difference on Line 8a on the 1040.  Any other suggestions?  Doing an amended 2019 return.

[wmbaker3]

TT did fix 2020 Premier to handle the ED67(e) ruling, but not 2019 or 2018 for amendments. So to amend 2018, I used IRS Forms 1040-X and Schedule 1.  I entered my 2018 data and the Excess Deduction on line 36 on Schedule 1. Then it carries right to line 1 column B (net change) on the 1040-X, then calculate your new tax based upon your new line 5 Taxable Income. This is for 2018,  2019 might be slightly different as they change Forms and line numbers between tax years.

This is following the IRS Ruling 113295-18 text on this issue.

[StarGirl18]

Unfortunately there is no line 36 on the 2019 Schedule 1, so that won't work.  Thanks anyway for answering.  Any one have another suggestion?

[chl11942]

The following procedure appears to work with 2019 TurboTax Deluxe for Mac (Download Version) 

In Forms mode open the Federal 1040/1040SR Worksheet.

Scroll Down to the Schedule 1-Additional Income and Adjustments section.

Go to Part II Adjustments to Income in this section. 

Locate the Other Adjustments to Income Smart Worksheet in Part II. 

On Line H enter “ED 67(e)” on the line preceding the asterisk and enter the appropriate $$ amount in the line at the far right of Line H.

The “ED 67(e)” and your $$ amount should appear on Schedule 1, Line 22 (the Line 22 shown on the left of Schedule 1), and your $$ amount should be included in the Line 22 total for Schedule 1 (the Line 22 shown at the right) and in Form 1040, Line 8a. 

[chl11942]

I did not notice that you were doing an Amended 2019 return.  

Hopefully, the procedure I described will give you enough information to work with. 

[wmbaker3]

I'm not sure TT fixes the amendment sections when they, perhaps, fix the main software for that year. I think if she just does the "equivalent" of what I did and you said, it should bring the income down and some tax reduction.  I'm hoping when the IRS see's the "ED67(e)   $XXXX", yeah that's correct. 

[tagteam]

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@wmbaker3 wrote:

....I'm hoping when the IRS see's the "ED67(e)   $XXXX", yeah that's correct. 

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I doubt Intuit will issue any further updates for 2018 and 2019 but the procedure you used (the one that has been recommended) should be fine, particularly since the IRS is well aware of the reporting methodolgy.

See https://www.irs.gov/forms-pubs/reporting-excess-deductions-on-termination-of-an-estate-or-trust-on-f...

[StarGirl18]

Thank you very much.  It worked!  Few more questions:  Will Turbo walk me thru this Form 1040-X, or am I to manually fill that out?   I never filed an amended return, so am I to send the corrected version of the 1040 with it, including a copy of the K-1 or do I just send 1040-X?  How do I find out if my state will accept excess deductions on termination of an estate for 2019?  Thanks everyone.

[wmbaker3]

Oh good. I don't think 2019 TT will handle it, so, yes, manually fill in the 1040-X. I submitted the 1040-X and a few pages that changed. I also did an "As Amended" 1040 as per the IRS amended guide, but only pages that change. That "As Amended" is not really filed, 1040-X handles the change.

Be sure to look up where to mail it (different).

As far as your State, my California return handled it fine for 2018 back then. The Fed had big changes in 2018, but all states are different, some with no taxes. TT 2019 may handle your state as mine did. You can go into Forms to see if the ED is being carried thru.

[StarGirl18]

Do I use the 1040X instructions for 2019 or 2020?  Sorry, but I don't know what you mean by "As Amended" is that written on top of your new 1040?

[wmbaker3]

Use current Instructions for 1040-X, they cover 2016, 17, 18, 19. The Form has boxes to check, i.e. 2019.

As Amended is a corrected redo of your 2019, only pages that change. I wrote "As Amended" on the top of each page so the IRS knows what that is.

So you file a 1040-X and a redo of 1040, for your 2019 year.

[StarGirl18]

wmbaker3, Thank you again.  So excess deductions was my only change, so I would write "As amended on Schedule 1, and also 1040 page 1 & 2, because the numbers changed there, right?  I had downloaded 2020 instructions, will have to go back and get 2019 instructions.  Stupid question, why wouldn't Turbo write as amended on those sheets since I did the 1040X using the program?  Ta

[wmbaker3]

Yes, write As amended on each 1040 page and each schedule page (that change).

I don't know about TT not automating that, but I decided my time was better spent just typing into IRS Forms from the Fed website, I have control over those.