Retroactive NYS Change for Estates and Trusts

As part of the budget legislation that was recently enacted by New York State for the fiscal year that began on April 1, 2019, the New York State income tax rules for trusts and estates have been retroactively changed as of January 1, 2018.

For taxable years beginning after December 31, 2017, Form IT-205, Fiduciary Income Tax Return, will now permit a subtraction adjustment/deduction for taxes (other than state and local sales and income taxes) that exceed the $10,000 limitation on federal Form 1041.  In addition, there will now be a subtraction adjustment/deduction for the miscellaneous itemized deductions that are no longer deductible on federal Form 1041 (e.g., investment advisory and management fees).

The New York State Department of Taxation and Finance has recently updated the 2018 version of the instructions for Form IT-205 to reflect these changes.

To the extent that 2018 income tax returns for trusts and estates are on extension, practitioners should make sure that they use the updated instructions when filing Form IT-205.

For returns that have already been filed for the 2018 tax year, practitioners will need to assess the effect of this change on such returns to see if amending the return is cost beneficial.