New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter II - Income Taxes and Estate Taxes › Subchapter A - New York State Personal Income Tax Under Article 22 Of The Tax Law › Article 2 - Residents › Part 118 - New York Taxable Income Of A Resident Estate Or Trust › Section 118.3 - Modifications for certain gains excluded from Federal distributable net income

Current through Register Vol. 46, No. 28, July 10, 2024
Tax Law, § 618(2)
(a) In determining the New York taxable
					 income of a resident estate or trust, Federal taxable income is reduced by the
					 amount of the modifications described in subdivisions (d) and (e) of section
					 112.3 
					 of this Article, but only with respect to gains (from the sale or other
					 disposition of property) which are excluded from Federal distributable net
					 income of the estate or trust. With respect to gains which are includible in
					 Federal distributable net income, any applicable modifications are reflected in
					 the New York fiduciary adjustment (see sections
					 118.4 
					 of this Part and Part 119 of this Article).
(b) The modifications provided by section
					 112.3(d) 
					 of this Article reduce, to the extent applicable, the gains reported by the
					 estate or trust for Federal income tax purposes from the sale or other
					 disposition of property having a higher New York State basis (on the last
					 effective date of article 16 of the Tax Law) than the Federal basis on that
					 date. The modifications provided by section
					 112.3(e) 
					 of this Article exclude any item of income or gain currently reported by the
					 estate or trust for Federal income tax purposes which was taxed by New York
					 State in a previous year under article 16 of the Tax Law. See subdivisions (d)
					 and (e) of section
					 112.3 
					 for a general discussion of these modifications as they apply to items of
					 income or gain received directly by resident individuals.
(c) The following discussion in this section
					 covers the application of these modifications in the case of estates and
					 trusts.
(1) Computation of the amount of
					 modifications for different Federal and New York State bases.
Where the sale or other disposition of a particular asset
						results in a gain which is taxable in total to the estate or trust, the gain is
						subject to a modification under section
						112.3(d) 
						of this Article if the property sold had a higher New York State income tax
						basis on the last day of the last year taxable under article 16 of the Tax Law
						than the Federal basis on such date. The amount to be subtracted from Federal
						taxable income is the portion of the gain reported for Federal income tax
						purposes which is not in excess of the difference between the two bases, except
						that if the gain is considered a long-term capital gain for Federal income tax
						purposes, the modification is limited to 40 percent of such portion of the gain
						(60 percent for taxable years beginning in 1972 and before 1982; 50 percent for
						taxable years beginning prior to January 1, 1972). The application of section
						112.3(d) 
						of this Article to such a gain by an estate is shown in the following
						example:
Example:
A testamentary trust created by a decedent contained
						stock which had a fair market value of $100,000 on July 1, 1958, the date of
						the decedent's death, and the stock was valued at this amount for New York
						State estate tax purposes. One year later the fair market value was $90,000,
						and the executor/trustee elected to use the lower value for Federal estate tax
						purposes. In 1985 the executor/trustee for the testamentary trust of the
						decedent sold the stock for $104,000, realizing a gain of $14,000 for Federal
						income tax purposes.
In accordance with the terms of the will, this gain was
						allocated to the corpus of the estate, so that it is excluded from
						distributable net income for Federal income tax purposes, and is taxable to the
						estate. Since it is a long-term capital gain, only 40 percent thereof is
						included in the estate's Federal taxable income.
The difference between the higher New York State basis
						and the Federal basis is $10,000 ($100,000 minus $90,000), so that the portion
						of the gain not in excess of the difference in basis is also $10,000. However,
						since this is a long-term capital gain, the modification is limited to $4,000,
						40 percent of the difference in basis and it is this amount which should be
						subtracted from the estate's Federal taxable income in determining its New York
						taxable income.
Note:
If the sale of this stock by the executor and the
						resulting long-term capital gain had occurred in a taxable year beginning in
						1972 and before 1982, the modification to be subtracted from Federal taxable
						income would be 60 percent of the difference in basis, or $6,000. If the sale
						of the stock by the executor and the resulting long-term capital gain had
						occurred in a taxable year beginning prior to 1972, the modification to be
						subtracted from Federal taxable income would be 50 percent of the difference in
						basis, or $5,000.
(2)
					 Modification for gains previously taxed under article 16 of the Tax Law.
These modifications are allowed in order to prevent a
						gain from being taxed under article 22 of the Tax Law, where the same gain was
						previously taxed under article 16 of the Tax Law either to the estate or trust,
						or to a decedent by reason of whose death the estate or trust acquired the
						right to receive the gain, or to another estate or trust from which the subject
						estate or trust received the gain.
Example:
On July 1, 1956, a resident individual, C, who filed his
						Federal and New York State personal income tax returns on a calendar year
						basis, sold certain real property, realizing a short-term capital gain of
						$6,000. He elected to report the gain on the installment method for both
						Federal and New York State personal income tax purposes. By reason of this
						election $1,000 of this gain was reportable on the 1956 calendar year Federal
						income tax return of C, and thereafter on each Federal income tax return for
						the succeeding five years, as the annual installment payments on July first
						each year were received. C died on April 30, 1959. In accordance with the
						applicable provisions of article 16 of the Tax Law then in force, C's executor
						included the entire amount of the previously unreportable gain ($3,000) in C's
						New York State personal income tax return for the period ending with his death;
						that is, from January 1 to April 30, 1959. C's executor properly reported
						$1,000 of such gain as income in respect of a decedent in each of the Federal
						income tax returns of the estate for 1959 and 1960. The $1,000 properly
						reported on the Federal income tax return is automatically reflected in the New
						York State personal income tax return for 1960, since the New York taxable
						income of a resident estate or trust is the same as the Federal taxable income,
						with certain modifications. Since the $1,000 was previously included in the
						gain properly reported in C's New York State personal income tax return for the
						period ending with his death in 1959, a modification reducing the estate's New
						York taxable income by $1,000 is allowed for 1960. (The same modification would
						be applicable for 1961 if the remaining $1,000 gain is properly included in the
						estate's Federal taxable income for 1961.) In this example, all of the capital
						gain is allocable to principal for estate accounting purposes and is thus
						taxable to the estate. No portion of the gain is therefore includible in the
						estate's Federal distributable net income, and no part of the above
						modification enters into the computation of the New York fiduciary adjustment.
						Accordingly, the entire amount of the modification is subtracted by C's
						executor from the estate's Federal taxable income in order to properly compute
						the New York taxable income of the estate.