Sec. 122.7. Specific deduction

Tax Law, § 662(c)

(a) Resident individuals.

The specific deduction of a resident individual or married individuals filing a joint return is $5,000. In the case of married individuals filing separate returns, regardless of whether on separate forms or on one form, the specific deduction is $2,500 for each spouse.

(b) Resident estates or trusts.

(1) The specific deduction of a resident estate or trust is an amount, not to exceed $5,000, which bears the same ratio to $5,000 as the sum of the New York items of tax preference of the estate or trust (determined as explained in section 122.1[b] [1] of this Part) bears to the sum of the Federal items of tax preference of the estate or trust (including the portion thereof allocated to the beneficiaries of such estate or trust) with the modifications described in sections 122.3 and 122.6 of this Part and increased by any net operating loss used to reduce the sum of the New York items of tax preference in a previous year (see section 122.1[c][2] of this Part).

Example:

For the calendar year 1994, a trust reports rental income for which accelerated depreciation was used for property placed in service before 1987. The trust distributes 60 percent of such income to the beneficiaries. The total Federal items of tax preference (including the portion thereof allocable to the beneficiaries) is $10,000 (excess of depreciation claimed for regular tax purposes over depreciation refigured using the straight line method), and the New York and Federal items of tax preference allocable to the trust would be $4,000 (40 percent of $10,000). The specific deduction allowable under this paragraph would be computed as follows:

	Amount for Federal (without allocation)	Amount for New York (without allocation)
Items of tax preference	$10,000	$4,000
Specific deduction:
$4,000/ $10,000 × $5,000 = $2,000

(2) Reduction of the specific deduction is required only in cases where the fiduciary has allocated items of tax preference to the beneficiaries of the estate or trust during the taxable year.