On January 19, 2019, the U.S. Department of Treasury and the Internal Revenue Service (IRS) released final regulations and related guidance regarding the Section 199A pass-through deduction, or the new qualified business income (QBI) deduction.
The pass-through deduction was created by the Tax Cuts and Jobs Act (TCJA) and allows a deduction up to 20 percent of qualified business income for many owners of sole proprietorships, partnerships, S corporations, trusts and estates. Taxpayers may also deduct up to 20 percent of qualified real estate investment trust (REIT) dividends as well as publicly traded partnership income.
The following items were included in the release:
- Final Regulations for QBI Deduction – In addition to containing final regulations for QBI deduction under Section 199A. A new set of proposed regulations is also included to provide guidance on specific features of the deduction.
- Revenue Procedure 2019-11 – The revenue procedure provides methods to determine the calculation of W-2 wages for the purpose of the pass-through deduction.
- Notice 2019-07 – This notice includes a proposed revenue procedure that provides a safe harbor for real estate enterprises to be treated as a trade or business exclusively for purposes of Section 199A.
Taxpayers with 2018 taxable income at or below $315,000 for joint returns, or $157,000 for other filers, may utilize the QBI deduction, while those with income above such levels are still eligible with certain limitations regarding the type or trade of the business, W-2 wages amounts paid and unadjusted basis immediately after acquisition of qualified property.
The QBI deduction is available for taxable years after December 31, 2017, meaning some taxpayers may be able to claim the deduction on the 2018 Form 1040.