Deductions for an estate or trust are similar to those of an individual.

a.

Expenses associated with income in respect of a decedent (IRD) that were not reported
on the decedent's final income tax return may be claimed by the taxpayer receiving the
IRD. Such expenses are deductible on both the estate tax return (Form 706) and on the
income tax return of the recipient of the IRD.

b.

An estate may elect to claim administration expenses and casualty losses as either an
estate tax deduction (Form 706) or as an income tax deduction (Form 1041). These
expenses cannot be claimed on both returns.

c.

A personal exemption is allowed as follows:

(1)
$600 for estates

d.

(2)

$300 for a trust that is required to distribute all of its income currently, does
not distribute from corpus, and does not have a charitable deduction (simple
trusts)

(3)

$4,000 for qualified disability trusts in 2015. This amount is tied to the
exemption amount available to an unmarried individual who is not a surviving
spouse or head of a household.

(4)

$100 for all other trusts (complex trusts)

An unlimited charitable contribution deduction is allowed to an estate or complex trust

if the contribution is paid out of gross income.
(1)
No deduction is available for contributions paid from tax-exempt income.
(a)
The will or trust agreement may dictate the specific income source
from which the contribution is to be paid.
(b)

(2)
e.

Contributions not identified as to source are considered to be made

proportionately from each element of income received by the trust
or estate. Such contributions must be allocated between taxable and
tax-exempt income.

No contribution deduction is available to simple trusts.

Distributions of income to beneficiaries are allowed as a deduction to both estates and

trusts. This deduction, however, cannot exceed distributable net income (DNI).
(1)
The DNI amount serves several roles:
(a)
DNI sets the limit on the amount of the distribution that is
deductible by the estate or trust for the tax year.
(b)

DNI also determines the amount and character of the income to be

reported by the beneficiaries.

(2)

The DNI amount is basically the entity's taxable income before the
distribution deduction with the following adjustments:
(a)
Additions:
i.
The personal exemption

(b)

Net tax-exempt interest

iii.

Net capital loss deduction

Subtractions:
i.
Net capital gains taxable to the entity
ii.

f.

ii.

For simple trusts, dividends allocable to corpus

Medical expenses and funeral expenses of a decedent are deductible on the estate's
income tax return under the following rules:
(1)
Medical expenses of a decedent that are paid within 12 months of the
decedent's death are deductible on the decedent's final income tax return if
they are not claimed as an estate tax deduction.
(2)

Medical expenses that are not paid within one year of death are deductible
only on the estate tax return (Form 706).

(3)

Funeral expenses may be deducted on the estate tax return (Form 706).

g.

Neither a capital loss nor a business loss sustained by a decedent may be carried
forward and deducted on the estate's income tax return.

h.

Trust payments normally allocated to principal would be monthly mortgage principal

payments.

i.

Trust payments normally allocated to income would be normal, ordinary, and necessary
payments that occur every year or month, such as insurance and taxes, and monthly
mortgage interest payments.

Done