As it turns out, there were some late additions to the budget deal. Included in these additions is a provision that decouples itemized deductions for an estate or trust or a beneficiary from the federal treatment. Specifically, it allows for the itemized deductions under Internal Revenue Code (“IRC”) Section 67 at the state level that are no longer allowed at the federal level after December 31, 2017, as amended by the Tax Cuts and Jobs Act (“TCJA”). This provision also applies retroactively beginning December 31, 2017. Essentially, this affords beneficiaries of estates or trusts the same treatment as individuals, resolving the mismatch we described here.
Before anyone gets too excited, the same section of the budget law also requires trusts and estates to add back into income the deduction under Section 199A of the IRC. This will require the beneficiaries to include this addition on their own personal New York returns. In other words, New York has exchanged one mismatch (the itemized deductions) between trusts and individuals for another (the 199A deduction). The provision is effective retroactively, which means that the 199A deduction amounts should be included on taxpayers’ returns that are due in just 2 weeks on April 15th.
If you haven’t filed yet, you or your accountant might have some revisions to make!
