Member Article

In December 2018, Part I of this column was based on the Proposed 199A Regulations1 and included the applicable definitions and the basic concepts and mechanics of the 199A 20% deduction of Qualified Business Income (“QBI”) up to the 20% of the excess of the taxpayer’s taxable income over the taxpayer’s net capital gain. For those individuals with taxable income (before the 199A deduction) above the threshold of $157,000 single or $315,000 joint return (the “Threshold”), there is a phased in application of the 50% of W-2 wages or the 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (“UBIA”) of depreciable tangible property limitation. For those individuals with taxable income (before the 199A deduction) above the Threshold that are involved in a specified service trade or business (“SSTB”), the 199A deduction phases out. The computation of W-2 wages and Notice 2018-64 and the UBIA rules as then found in the Proposed Regulations was discussed. As discussed herein, the 199A Regulations2 modified the UBIA rules found in the Proposed Regulations. The application of Code Sec. 199A to trusts and estates was also discussed, but the Final Regulations made significant changes to those Proposed Regulations with modifications that include the substantive deletion of the Proposed Regulations for Code Sec. 643(f).

Part II incorporates the major changes between the Proposed Regulations and the Final Regulations but does not discuss the new proposed regulations dealing with previously suspended losses that constitute QBI and regulated investment companies, charitable remainder trusts and split-interest trusts,3 which were not covered in the Proposed Regulations. Part II also explores the aggregation of businesses held in separate entities and the disaggregation of separate businesses within one entity as well as what constitutes an SSTB. This column concludes with the Regulations’ provisions on estates and trusts.

click here to read more.