Tax Alert: Brief Summary for the Proposed Sec. 199A Regs

Today, Engineered Tax Services provides a quick summary of the 184 pages of regulations released by the IRS this week, more to follow…

1. The term “trade or business” is the Sec. 162 definition. This excludes real estate, absent real estate professional status. But can group rental or intangible property with a trade or business if there is common control over both. This may be a problem for pure real estate investors. The Real Estate Round Table should have focused more on this–as we suggested.
2. QBI is calculated for each trade or business and then netted. So if you have a profitable business and a loss business, you net those for computing QBI. If the net amount is a loss, then you have a QBI carry-forward to the next year.
3. QBI is calculated for each trade or business and then netted. So if you have a profitable business and a loss business, you net those for computing QBI. If the net amount is a loss, then you have a QBI carry-forward to the next year.
4. The 50% wage limitation is applied on a separate trade or business basis.
5. The 199A deduction doesn't reduce self-employment tax.
6. Taxpayers paying temp agencies, etc. can use the wages paid by the temp agency in computing the 199A deduction.
7. The “unadjusted basis” is the date the property is placed in service, so you can buy it on date 1 and hold it and not place in service until later at date 2, and the date 2 counts. Addresses the 1031 question for the replacement property, by using the excess value for the replacement property, not just the relinquished property. Also says that if you have improvements that are segregated out, those are treated as a separate property–so can do cost seg and not have to worry about missing the segregated property.
8. The term “qualified property” means property used in the business during the year and held at the end of the year, so if you acquire it w/in 60 days of the end of the year and dispose of it w/in 120 days, it isn't qualified property for 199A.
9. A Sec. 481 adjustment, whether positive or negative, will be QBI if they arise post 1/1/18. So a Sec. 481 adjustment arising post this date can be QBI. This could be big for cost segs in the coming years. Need to read this one closer.
10. Passive activity losses (and other suspended losses) are not treated as QBI until the year they are used up.
11. You can aggregate or combine trades or businesses if the same ownership (majority ownership the same) and two of three factors (same products/services, share business elements, or dependent businesses).
12. There is a de minimus rule for specified service trade or business where it is not an SSTB if less than $25m gross receipts in the year and less than 10% of gross receipts are attributable to SSTB services. E.g., optometrist that also owns an eyeglass business. Has definitions for specified service trade or business. Maybe planning opportunities with the definitions.
13. There are anti-abuse rules for switching from an employee to a contractor.
14. Multiple trusts, etc. anti-abuse rules.