IRS Issues Proposed Section 199A Regulations

August 8, 2018

The IRS estimates 10 million taxpayers will be affected by this new 20 percent deduction under section 199A. On Aug. 8 the IRS released proposed regulations [REG 107892-18] covering the 20 percent deduction. These regulations answer many questions not addressed in the statute and are more than 180 pages long. On Oct. 1 Walter Nunnallee, one of TSCPA's most highly rated and entertaining presenters, will cover each aspect of this new section 199A deduction including complete coverage of the proposed regulations. This event will also be available via livestream. Learn more > HERE

The new deduction - referred to as the Section 199A deduction or the deduction for qualified business income - was created by the Tax Cuts and Jobs Act. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains.

Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited. Those limitations are fully described in the proposed regulations.

Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.

In addition, Notice 2018-64, also issued today, provides methods for calculating Form W-2 wages for purposes of the limitations on this deduction. More information may be found at www.IRS.gov.

Taxpayers may rely on the rules in these proposed regulations until final regulations are published in the Federal Register.

Written or electronic comments and requests for a public hearing on this proposed regulation must be received within 45 days of publication in the Federal Register.