The New QBI Deduction
By Joe Nagel, Esq., LLM, CPA
On January 18, 2019, the IRS issued final regulations for the new qualified business income (QBI) deduction (section 199A of the Internal Revenue Code), https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf.
The new QBI allows many (but not all) owners of pass through entities (sole proprietorships, partnerships, S corporations) a deduction of up to 20% of their qualified business income, subject to limitations. Generally, those with income below $157,500 (for individuals) and $315,000 (for taxpayers filing joint returns) may qualify for the deduction regardless of their trade or business and without limitation for W-2 wages paid by the business. Those with incomes above those amounts may still be eligible depending on the type of business (generally, non-service businesses will qualify), but subject to a limitation of the greater of 1) 50% of W-2 wages paid by the qualifying business or 2) 25% of W-2 wages paid plus 2.5% of the qualifying business’s unadjusted basis in property. The QBI deduction is available in tax years beginning after Dec. 31, 2017. As a result, eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.
The January 2019 guidance from the IRS includes 1) issuance of the finalized regulations (originally issued as proposed regulations in August 2018); 2) Rev. Proc. 2019-11 https://www.irs.gov/pub/irs-drop/rp-19-11.pdf providing guidance on determining W-2 wages for QBI deduction purposes, and a notice of proposed revenue procedure https://www.irs.gov/pub/irs-drop/n-19-07.pdf providing a safe harbor for certain real estate enterprises that may be treated as trades or businesses for purposes of the QBI deduction.
The proposed revenue procedure, included in Notice 2019-07, allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for purposes of the QBI deduction if certain requirements are met. Taxpayers can rely on this safe harbor until a final revenue procedure is issued.
If you have questions about the new 199A deduction, please feel free to contact us at 404-255-7400 or info@hoffmanestatelaw.com.
