USC - Special rules for credits and deductions

View all text of Subpart A [§ 641 - § 646]

§ 642. Special rules for credits and deductions

(a) Foreign tax credit allowed

(b) Deduction for personal exemption

(1) Estates

(2) Trusts

(A) In general

(B) Trusts distributing income currently

(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), 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 general(II) Inflation adjustment

(3) Deductions in lieu of personal exemption

(1) General rule

(2) Amounts permanently set asideIn 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—

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

(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—

(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

(4) Adjustments

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

(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),

(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.

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

(d) Net operating loss deduction

(e) Deduction for depreciation and depletion

(f) Amortization deductions

(g) Disallowance of double deductions

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

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

(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,

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 fundsIn the case of a cemetery perpetual care fund which—

(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.

(Aug. 16, 1954, ch. 736, 68A Stat. 215; Pub. L. 87–834, § 13(c)(2)(A), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 88–272, title II, § 201(d)(6)(A), (B), Feb. 26, 1964, 78 Stat. 32; Pub. L. 89–621, § 2(a), Oct. 4, 1966, 80 Stat. 872; Pub. L. 91–172, title II, § 201(b), title VII, § 704(b)(2), Dec. 30, 1969, 83 Stat. 558, 669; Pub. L. 92–178, title III, § 303(c)(4), title VII, §§ 701(b), 702(b), Dec. 10, 1971, 85 Stat. 522, 561, 562; Pub. L. 94–455, title XIV, § 1402(b)(1)(J), (2), title XIX, §§ 1901(b)(1)(H)(i), 1906(b)(13)(A), 1951(c)(2)(B), title XX, § 2009(d), title XXI, § 2124(a)(3)(B), Oct. 4, 1976, 90 Stat. 1732, 1791, 1834, 1840, 1896, 1917; Pub. L. 94–528, § 1(a), Oct. 17, 1976, 90 Stat. 2483; Pub. L. 95–30, title I, § 101(d)(9), May 23, 1977, 91 Stat. 134; Pub. L. 95–600, title I, § 113(a)(2)(B), Nov. 6, 1978, 92 Stat. 2778; Pub. L. 97–34, title II, § 212(d)(2)(D), Aug. 13, 1981, 95 Stat. 239; Pub. L. 98–369, div. A, title IV, § 474(r)(17), title X, § 1001(b)(8), (e), July 18, 1984, 98 Stat. 843, 1011, 1012; Pub. L. 99–514, title I, § 112(b)(2), title III, § 301(b)(6), title VI, § 612(b)(3), Oct. 22, 1986, 100 Stat. 2108, 2217, 2250; Pub. L. 101–239, title VII, § 7811(j)(3), Dec. 19, 1989, 103 Stat. 2411; Pub. L. 101–508, title XI, §§ 11801(c)(6)(B), 11812(b)(9), Nov. 5, 1990, 104 Stat. 1388–524, 1388–535; Pub. L. 103–66, title XIII, §§ 13113(d)(2), 13261(f)(2), Aug. 10, 1993, 107 Stat. 429, 539; Pub. L. 104–188, title I, § 1704(t)(8), Aug. 20, 1996, 110 Stat. 1887; Pub. L. 107–134, title I, § 116(a), Jan. 23, 2002, 115 Stat. 2439; Pub. L. 113–295, div. A, title II, § 202(a), Dec. 19, 2014, 128 Stat. 4024; Pub. L. 115–97, title I, § 11041(b), Dec. 22, 2017, 131 Stat. 2082; Pub. L. 115–141, div. U, title IV, § 401(a)(137), Mar. 23, 2018, 132 Stat. 1190.)