Excess Deduction and Loss Pass-Through on Termination

§ 642. Special rules for credits and deductions(a) Foreign tax credit allowedAn 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. (b) Deduction for personal exemption(1) EstatesAn estate shall be allowed a deduction of $600. (2) Trusts(A) In generalExcept as otherwise provided in this paragraph, a trust shall be allowed a deduction of $100. (B) Trusts distributing income currentlyA trust which, under its governing instrument, is required to distribute all of its income currently shall be allowed a deduction of $300. (C) Disability trusts(i) In generalA qualified disability trust shall be allowed a deduction equal to the exemption amount under section 151(d), determined—(I) by treating such trust as an individual described in section 68(b)(1)(C),11 See References in Text note below. and (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 trustFor purposes of clause (i), the term “qualified disability trust” means any trust if—(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(I) In generalIn 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 adjustmentIn the case of any taxable year beginning in a calendar year after 2018, the $4,150 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 exemptionThe deductions allowed by this subsection shall be in lieu of the deductions allowed under section 151 (relating to deduction for personal exemption).