{"id":15649,"date":"2019-03-08T11:00:45","date_gmt":"2019-03-08T17:00:45","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=15649"},"modified":"2019-06-18T10:20:21","modified_gmt":"2019-06-18T15:20:21","slug":"qualified-business-income-deduction-hot-topics","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/qualified-business-income-deduction-hot-topics\/","title":{"rendered":"Qualified Business Income Deduction Hot Topics"},"content":{"rendered":"<p>As we near the business filing deadline, we wanted to recap some of the topics related to the qualified business income (QBI) deduction, or Sec. 199A, about which our team most commonly receives questions. I hope this summary helps you get your business returns over the finish line on March 15. The material for this article comes from the following resources, which may be helpful if you&#8217;re looking for further information:<\/p>\n<ul>\n<li><a href=\"https:\/\/www.irs.gov\/newsroom\/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-199aFAQs\" target=\"_blank\">IRS Qualified Business Income Deduction FAQs<\/a><\/li>\n<li><a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/p535.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-pub535\" target=\"_blank\">IRS Publication 535<\/a> (Chapter 12)<\/li>\n<li><a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-19-07.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-n1907\" target=\"_blank\">Sec. 199A Trade or Business Safe Harbor: Rental Real Estate Notice 2019-07<\/a><\/li>\n<\/ul>\n<p><strong>QBI Recap<\/strong><\/p>\n<p>For tax years beginning in 2018, taxpayers may be entitled to a deduction of up to 20 percent of QBI from a trade or business, including income from a pass-through entity, but not from a C corporation, plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.<\/p>\n<ul>\n<li>Eligible taxpayers may be entitled to a deduction of up to 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. For taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer\u2019s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.<\/li>\n<li>S corporations and partnerships are generally not taxpayers and cannot take the deduction themselves. However, all S corporations and partnerships report each shareholder\u2019s or partner\u2019s share of QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends and qualified PTP income on Schedule K-1, so the shareholders or partners may determine their deduction.<\/li>\n<li>Qualified business income is reduced by other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance and contributions to qualified retirement plans.<\/li>\n<li>Net earnings from self-employment aren\u2019t reduced by the QBI deduction when computing self-employment tax.<\/li>\n<\/ul>\n<p><strong>Specified Service Trade or Business (SSTB)<\/strong><\/p>\n<p>Specified service trades or businesses generally are excluded from the definition of qualified trade or business income if the taxpayer&#8217;s taxable income exceeds the threshold.<\/p>\n<ul>\n<li>Exception 1: If your taxable income before the QBI deduction isn\u2019t more than $157,500 ($315,000 if married filing jointly), your specified service trade or business is a qualified trade or business, and thus may generate income eligible for the QBI deduction.<\/li>\n<li>Exception 2: If your taxable income before the QBI deduction is more than $157,500 but not $207,500 ($315,000 and $415,000 if married filing jointly), an applicable percentage of your specified service trade or business is treated as a qualified trade or business.<\/li>\n<\/ul>\n<p>A specified service trade or business is any trade or business providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading, dealing in securities, and any trade or business where the principal asset is the reputation or skill of one or more of its employees. Refer to Publication 535 for a list of professions included in each field, and Schedule A, which details the computation.<\/p>\n<p><strong>Rental Real Estate Safe Harbor<\/strong><\/p>\n<p>The ownership and rental of real property may constitute a trade or business. <a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/n-19-07.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-n1907\" target=\"_blank\">Notice 2019-07<\/a> provides a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of the QBI deduction. Relevant pass-through entities (RPEs) may also use this safe harbor in order to determine whether a rental real estate enterprise is a trade or business. Failure to satisfy the requirements of this safe harbor does not preclude a taxpayer from otherwise establishing that a rental real estate enterprise is a trade or business for purposes of Sec. 199A.<\/p>\n<p>Solely for purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held for the production of rents and may consist of an interest in multiple properties. A rental real estate enterprise will be treated as a trade or business if the following requirements are satisfied:<\/p>\n<ol>\n<li>Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;<\/li>\n<li>For taxable years beginning prior to Jan. 1, 2023, 250 or more hours of rental services are performed per year with respect to the rental enterprise; and<\/li>\n<li>The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services.<\/li>\n<\/ol>\n<p>Rental services may be performed by owners or by employees, agents, and\/or independent contractors of the owners. A taxpayer or RPE must include a statement attached to the return on which it claims the Sec. 199A deduction or passes through Sec. 199A information that the requirements have been satisfied.<\/p>\n<p>The following rental real estate arrangements are not eligible for the safe harbor:<\/p>\n<ul>\n<li>Real estate used by the taxpayer as a residence for any part of the year under Sec. 280A<\/li>\n<li>Real estate rented or leased under a triple net lease<\/li>\n<\/ul>\n<p><strong>Aggregation of Business Operations<\/strong><\/p>\n<p>An individual or pass-through entity may be engaged in more than one trade or business. Each trade or business is a separate trade or business for purposes of applying the W-2 wage limitation or the UBIA limitation. However, you may choose to aggregate multiple trades or businesses into a single trade or business for purposes of applying the limitations if you meet certain requirements. None of the trades or business can be a specified service trade or business. If an RPE aggregates multiple trades or businesses, you must attach the RPE\u2019s aggregations to Schedule B (<a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/p535.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-pub535\" target=\"_blank\">Publication 535<\/a>). Your aggregations must be reported consistently for all subsequent years unless there is a significant change in facts and circumstances that disqualify the aggregation.<\/p>\n<p><strong>QBI Loss Netting and Carryforward<\/strong><\/p>\n<p>If any of your trades or businesses have a net loss for the current year or you have a qualified business net loss carryforward from prior years, you must complete Schedule C (<a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/p535.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_irs-pub535\" target=\"_blank\">Publication 535<\/a>). Schedule C offsets your trade or business net losses against net income from your other trades or businesses. If you have an overall net loss for the year, you don\u2019t qualify for a QBI deduction in the current year.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Editor&#8217;s note<\/strong>: For more information on tax reform, visit the Intuit\u00ae ProConnect\u2122 <a href=\"https:\/\/proconnect.intuit.com\/tax-reform\/\"title=\"\"  target=\"_blank\" rel=\"false noopener noreferrer\" data-wa-link=\"body_taxreform\">Tax Reform Resource Center<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As we near the business filing deadline, read this recap some of the topics related to the qualified business income (QBI) deduction, or sec. 199A, about which Intuit ProConnect most commonly receives questions.<\/p>\n","protected":false},"author":107082828,"featured_media":8803,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_reviewed_by_select":[],"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","customModifiedDate":"","_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"{title}\n\n{excerpt}\n\n{url}","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[509474089],"tags":[10585,582953261],"intuit_collection":[],"intuit_series":[],"coauthors":[509474105],"class_list":["post-15649","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news","tag-small-business","tag-tax-reform"],"header_image":"","yoast_head":"<!-- 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