In a previous article, it was suggested that the new limitation on itemized deductions, reducing itemized deductions by 2/37ths of the amount by the amount by which taxable income is subject to tax at the maximum 37% rate, should not apply to the charitable deduction for estates and trusts. A new publication from the Joint Committee on Taxation might have clarified Congressional intent but does not adequately address the issue.
The new publication is the “General Explanation of the Tax Provisions of Public Law 119-21” (May 2026), prepared by the staff of the Joint Committee on Taxation. (This kind of general explanation is commonly known as a “Blue Book,” and Public Law 119-21 is commonly referred to as the “One Big Beautiful Bill Act” or “OBBBA,” although that was not the official name of the act.)
Footnote 102 on pages 26-27 of that publication confirms the general conclusion that new § 68 applies to estates and trusts, but does not address the apparent conflict between the new limitation under § 68 and the language of § 642(c), which provides a charitable deduction for estates and trusts for “any amount of gross income, without limitation.”
The full text of the footnote is as follows:
The [new section 68] provision also applies to estates and trusts. See sec. 641(b) (providing that the taxable income of an estate or trust generally is computed in the same manner as in the case of an individual). Section 63(d) defines the term ‘‘itemized deductions’’ to refer to all allowable deductions other than those allowable in arriving at adjusted gross income, see sec. 62, and those listed in section 63(b). Therefore, the itemized deductions for an estate or trust include (without limitation) the personal exemption under section 642(b) and the deductions for beneficiary distributions under sections 651 and 661. Treasury Regulation section 1.67–4(a)(1)(ii) provides that these three deductions ‘‘are not itemized deductions under section 63(d).’’ That regulation, however, interprets section 67(e), which provides, ‘‘For purposes of this section [which, for certain taxable years, imposed a limitation on miscellaneous itemized deductions],’’ the section 642(b), 651, and 661 deductions are treated as allowable in arriving at adjusted gross income. Because the rule of section 67(e) is, by its terms, limited to section 67, the regulation does not exclude the deductions under section 642(b), 651, or 661, or any other deductions, from being itemized deductions for purposes of the provision.
By contrast, although partnerships and S corporations generally compute taxable income in the same manner as in the case of an individual, see secs. 703(a), 1363(b), the provision does not apply to partnerships or S corporations (but does apply to individual partners of partnerships and to individual shareholders of S corporations). Section 1 provides rate bracket amounts (including the 37-percent rate bracket amounts on the basis of which the provision’s limitation is calculated) only for natural persons, estates, and trusts, not for partnerships or S corporations.
