26 U.S.C. § 642: Special rules for credits and deductions

Amended 1971, 1976, 1977, 1978, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 612(b)(3), struck out subsec. (j) which provided a cross reference to section 116(c)(3).
1978 Pub. L. 95-600 Pub. L. 95–600 redesignated subsecs. (j) and (k) as (i) and (j), respectively. Former subsec. (i), which did not allow estates or trusts the deduction for contributions to candidates for public office provided by section 218, was struck out.
1977 Pub. L. 95-30 Pub. L. 95–30 struck out par. (1) which made a cross reference to section 142(b)(4) for disallowance of the standard deduction in the case of estates and trusts and struck out “(2)” at beginning of single remaining cross reference.
1976 Pub. L. 94-528 Pub. L. 94–528 added subsec. (j) and redesignated former subsec. (j) as (k).
1971 Pub. L. 92-178 Pub. L. 92–178, § 702(b), added subsec. (i) and redesignated former subsec. (i) as (j).

Cases: United California Bank v. United States, 439 U.S. 180 (1978)

Final rules 11

(a) Foreign tax credit allowed An estate or trust shall be allowed the credit against tax for taxes imposed by foreign countries and possessions of the United States, to the extent allowed by section 901, only in respect of so much of the taxes described in such section as is not properly allocable under such section to the beneficiaries.

§ 1.642(a)(1)-1 Partially tax-exempt interest.§ 1.642(a)(2)-1 Foreign taxes.§ 1.642(a)(3)-1 Dividends received by an estate or trust.§ 1.642(a)(3)-2 Time of receipt of dividends by beneficiary.§ 1.642(a)(3)-3 Cross reference.

Amended 1964, 1971, 1976, 1984, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 112(b)(2), amended subsec. (a) generally, substituting “Foreign tax credit allowed” for “Credits against tax” in heading, striking out designation and heading for par. (1), and striking out par. (2) which read as follows: “An estate or trust shall not be allowed the credit against tax for political contributions provided by section 24.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 474(r)(17), substituted “section 24” for “section 41”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(b)(1)(H)(i), redesignated former pars. (2) and (3) as (1) and (2), respectively. Former par. (1), relating to the credit against tax for partially tax-exempt interest, was struck out.
1971 Pub. L. 92-178 Pub. L. 92–178, § 701(b), added par. (3).
1964 Pub. L. 88-272 Pub. L. 88–272, § 201(d)(6)(A), struck out par. (3) which related to dividends received by individuals.

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(b) Deduction for personal exemption

§ 1.642(b)-1 Deduction for personal exemption.

Amended 2002

2002 Pub. L. 107-134 Pub. L. 107–134 reenacted heading without change and amended text of subsec. (b) generally. Prior to amendment, text read as follows: “An estate shall be allowed a deduction of $600. A trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $300. All other trusts shall be allowed a deduction of $100. The deductions allowed by this subsection shall be in lieu of the deductions allowed under section 151 (relating to deduction for personal exemption).”

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(1) Estates An estate shall be allowed a deduction of $600.

(2) Trusts

(A) In general Except as otherwise provided in this paragraph, a trust shall be allowed a deduction of $100.

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(B) Trusts distributing income currently A trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $300.

(i) In general A qualified disability trust shall be allowed a deduction equal to the exemption amount under section 151(d), determined—

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(I) by treating such trust as an individual described in section 68(b)(1)(C), [OLRC note: See References in Text note below.] and

Amended 2014

2014 Pub. L. 113-295 Pub. L. 113–295 substituted “section 68(b)(1)(C)” for “section 151(d)(3)(C)(iii)”.

(II) by applying section 67(e) (without the reference to section 642(b)) for purposes of determining the adjusted gross income of the trust.

(ii) Qualified disability trust For purposes of clause (i), the term “qualified disability trust” means any trust if—

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(I) such trust is a disability trust described in subsection (c)(2)(B)(iv) of section 1917 of the Social Security Act (42 U.S.C. 1396p), and

(II) all of the beneficiaries of the trust as of the close of the taxable year are determined by the Commissioner of Social Security to have been disabled (within the meaning of section 1614(a)(3) of the Social Security Act, 42 U.S.C. 1382c(a)(3)) for some portion of such year.

A trust shall not fail to meet the requirements of subclause (II) merely because the corpus of the trust may revert to a person who is not so disabled after the trust ceases to have any beneficiary who is so disabled.

(iii) Years when personal exemption amount is zero

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97 added cl. (iii).

(I) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting “$4,150” for “the exemption amount under section 151(d)”.

(II) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $4,150 [OLRC note: So in original.] amount in subparagraph (A) shall be increased in the same manner as provided in section 6334(d)(4)(C).

(3) Deductions in lieu of personal exemption The deductions allowed by this subsection shall be in lieu of the deductions allowed under section 151 (relating to deduction for personal exemption).

§ 1.642(c)-0 Effective dates.§ 1.642(c)-1 Unlimited deduction for amounts paid for a charitable purpose.§ 1.642(c)-2 Unlimited deduction for amounts permanently set aside for a charitable purpose.§ 1.642(c)-3 Adjustments and other special rules for determining unlimited charitable contributions deduction.§ 1.642(c)-4 Nonexempt private foundations.§ 1.642(c)-5 Definition of pooled income fund.§ 1.642(c)-6 Valuation of a remainder interest in property transferred to a pooled income fund.§ 1.642(c)-7 Transitional rules with respect to pooled income funds.§ 1.642(c)-6A Valuation of charitable remainder interests for which the valuation date is before June 1, 2023.

Amended 1969

1969 Pub. L. 91-172 Pub. L. 91–172, § 201(b), designated existing provisions, with minor changes, as par. (1) and added pars. (2) to (6).

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(1) General rule In the case of an estate or trust (other than a trust meeting the specifications of subpart B), there shall be allowed as a deduction in computing its taxable income (in lieu of the deduction allowed by section 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in section 170(c) (determined without regard to section 170(c)(2)(A)). If a charitable contribution is paid after the close of such taxable year and on or before the last day of the year following the close of such taxable year, then the trustee or administrator may elect to treat such contribution as paid during such taxable year. The election shall be made at such time and in such manner as the Secretary prescribes by regulations.

Amended 1976, 2018

2018 Pub. L. 115-141 Pub. L. 115–141 substituted “other than” for “other then”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

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(2) Amounts permanently set aside In the case of an estate, and in the case of a trust (other than a trust meeting the specifications of subpart B) required by the terms of its governing instrument to set aside amounts which was—

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(A) created on or before October 9, 1969, if—

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(i) an irrevocable remainder interest is transferred to or for the use of an organization described in section 170(c), or

(ii) the grantor is at all times after October 9, 1969, under a mental disability to change the terms of the trust; or

(B) established by a will executed on or before October 9, 1969, if—

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(i) the testator dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise,

(ii) the testator at no time after October 9, 1969, had the right to change the portions of the will which pertain to the trust, or

(iii) the will is not republished by codicil or otherwise before October 9, 1972, and the testator is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise,

there shall also be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit. In the case of a trust, the preceding sentence shall apply only to gross income earned with respect to amounts transferred to the trust before October 9, 1969, or transferred under a will to which subparagraph (B) applies.

(3) Pooled income funds In the case of a pooled income fund (as defined in paragraph (5)), there shall also be allowed as a deduction in computing its taxable income any amount of the gross income attributable to gain from the sale of a capital asset held for more than 1 year, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c).

Amended 1976, 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 1001(b)(8), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(1)(J), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

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(4) Adjustments To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202. In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income).

Amended 1976, 1984, 1986, 1993

1993 Pub. L. 103-66 Pub. L. 103–66, § 13113(d)(2), amended heading and text of par. (4) generally. Prior to amendment, text read as follows: “In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income).”
1986 Pub. L. 99-514 Pub. L. 99–514, § 301(b)(6), in heading, substituted “Coordination with section 681” for “Adjustments”, and in text struck out first sentence which read as follows: “To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain from the sale or exchange of capital assets held for more than 6 months, proper adjustment shall be made for any deduction allowable to the estate or trust under section 1202 (relating to deduction for excess of capital gains over capital losses).”
1984 Pub. L. 98-369 Pub. L. 98–369, § 1001(b)(8), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(1)(J), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

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(5) Definition of pooled income fund For purposes of paragraph (3), a pooled income fund is a trust—

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

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(A) to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer),

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(B) in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers,

(D) which includes only amounts received from transfers which meet the requirements of this paragraph,

(E) which is maintained by the organization to which the remainder interest is contributed and of which no donor or beneficiary of an income interest is a trustee, and

(F) from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A), determined by the rate of return earned by the trust for such year.

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For purposes of determining the amount of any charitable contribution allowable by reason of a transfer of property to a pooled fund, the value of the income interest shall be determined on the basis of the highest rate of return earned by the fund for any of the 3 taxable years immediately preceding the taxable year of the fund in which the transfer is made. In the case of funds in existence less than 3 taxable years preceding the taxable year of the fund in which a transfer is made the rate of return shall be deemed to be 6 percent per annum, except that the Secretary may prescribe a different rate of return.

(6) Taxable private foundations In the case of a private foundation which is not exempt from taxation under section 501(a) for the taxable year, the provisions of this subsection shall not apply and the provisions of section 170 shall apply.

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(d) Net operating loss deduction The benefit of the deduction for net operating losses provided by section 172 shall be allowed to estates and trusts under regulations prescribed by the Secretary.

§ 1.642(d)-1 Net operating loss deduction.

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

(e) Deduction for depreciation and depletion An estate or trust shall be allowed the deduction for depreciation and depletion only to the extent not allowable to beneficiaries under sections 167(d) and 611(b).

§ 1.642(e)-1 Depreciation and depletion.

Amended 1962, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(b)(9), substituted “167(d)” for “167(h)”.
1962 Pub. L. 87-834 Pub. L. 87–834 substituted a reference to section 167(h) for a reference to section 167(g).

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(f) Amortization deductions The benefit of the deductions for amortization provided by sections 169 and 197 shall be allowed to estates and trusts in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary.

§ 1.642(f)-1 Amortization deductions.

Amended 1969, 1971, 1976, 1981, 1990, 1993

1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(f)(2), substituted “sections 169 and 197” for “section 169”.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(6)(B), substituted “section 169” for “sections 169, 184, 187, and 188”.
1981 Pub. L. 97-34 Pub. L. 97–34 substituted “and 188” for “188, and 191”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1906(b)(13)(A), 1951(c)(2)(B), 2124(a)(3)(B), substituted “sections 169, 184, 187, 188, and 191” for “sections 168, 169, 184, 187, and 188”, and struck out “or his delegate” after “Secretary”.
1971 Pub. L. 92-178 Pub. L. 92–178, § 303(c)(4), inserted reference to section 188.
1969 Pub. L. 91-172 Pub. L. 91–172, § 704(b)(2), struck out reference to emergency or grain storage facilities both in heading and in text, and inserted reference to sections 184 and 187 in text.

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(g) Disallowance of double deductions Amounts allowable under section 2053 or 2054 as a deduction in computing the taxable estate of a decedent shall not be allowed as a deduction (or as an offset against the sales price of property in determining gain or loss) in computing the taxable income of the estate or of any other person, unless there is filed, within the time and in the manner and form prescribed by the Secretary, a statement that the amounts have not been allowed as deductions under section 2053 or 2054 and a waiver of the right to have such amounts allowed at any time as deductions under section 2053 or 2054. Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under section 2621(a)(2) or 2622(b). This subsection shall not apply with respect to deductions allowed under part II (relating to income in respect of decedents).

§ 1.642(g)-1 Disallowance of double deductions; in general.§ 1.642(g)-2 Deductions included.

Amended 1966, 1976, 1989, 1996

1996 Pub. L. 104-188 Pub. L. 104–188 substituted “under section 2621(a)(2)” for “under 2621(a)(2)”.
1989 Pub. L. 101-239 Pub. L. 101–239 inserted after first sentence “Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under 2621(a)(2) or 2622(b).”
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1906(b)(13)(A), 2009(d), inserted “(or as an offset against the sales price of property in determining gain or loss)” after “shall not be allowed as a deduction”, and struck out “or his delegate” after “Secretary”.
1966 Pub. L. 89-621 Pub. L. 89–621 inserted “or of any other person” after “shall not be allowed as a deduction in computing the taxable income of the estate”.

Cases: Commissioner v. Estate of Hubert, 520 U.S. 93 (1997); Batchelor-Robjohns v. United States, 788 F.3d 1280 (11th Cir. 2015)

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(h) Unused loss carryovers and excess deductions on termination available to beneficiaries If on the termination of an estate or trust, the estate or trust has—

§ 1.642(h)-1 Unused loss carryovers on termination of an estate or trust.§ 1.642(h)-2 Excess deductions on termination of an estate or trust.§ 1.642(h)-3 Meaning of “beneficiaries succeeding to the property of the estate or trust”.§ 1.642(h)-4 Allocation.§ 1.642(h)-5 Examples.

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

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(1) a net operating loss carryover under section 172 or a capital loss carryover under section 1212, or

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(2) for the last taxable year of the estate or trust deductions (other than the deductions allowed under subsections (b) or (c)) in excess of gross income for such year,

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then such carryover or such excess shall be allowed as a deduction, in accordance with regulations prescribed by the Secretary, to the beneficiaries succeeding to the property of the estate or trust.

(i) Certain distributions by cemetery perpetual care funds In the case of a cemetery perpetual care fund which—

“In the case of a cemetery perpetual care fund which—” Opening words

Textual readingALL OF= cemetery perpetual care fund covered

(1) was created pursuant to local law by a taxable cemetery corporation for the care and maintenance of cemetery property, and

(2) is treated for the taxable year as a trust for purposes of this subchapter,

any amount distributed by such fund for the care and maintenance of gravesites which have been purchased from the cemetery corporation before the beginning of the taxable year of the trust and with respect to which there is an obligation to furnish care and maintenance shall be considered to be a distribution solely for purposes of sections 651 and 661, but only to the extent that the aggregate amount so distributed during the taxable year does not exceed $5 multiplied by the aggregate number of such gravesites.

§ 1.642(i)-1 Certain distributions by cemetery perpetual care funds.§ 1.642(i)-2 Definitions.

Amended 1964, 1971, 1978

1978 Pub. L. 95-600 Pub. L. 95–600 redesignated subsecs. (j) and (k) as (i) and (j), respectively. Former subsec. (i), which did not allow estates or trusts the deduction for contributions to candidates for public office provided by section 218, was struck out.
1971 Pub. L. 92-178 Pub. L. 92–178, § 702(b), added subsec. (i) and redesignated former subsec. (i) as (j).
1964 Pub. L. 88-272 Pub. L. 88–272, § 201(d)(6)(B), designated existing provisions as par. (1) and added par. (2).

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