IRS Issues Final Regulations on Section 199A Pass-Through Deduction and Walter Nunnallee to Present on Updates

January 19, 2019

The Treasury Department and IRS recently issued final regulations and three related pieces of guidance implementing the new qualified business income deduction, also known as the Section 199A pass-through deduction, of the Tax Cuts and Jobs Act.

Walter Nunnallee will be returning to TSCPA Feb. 13 for a half-day training on the final regulations and new guidance. A webcast replay will be available Feb. 20. To register click here.

Section 199A allows many businesses whose owners pay the taxes on their personal tax returns—including sole proprietorships, partnerships, S corporations, trusts and estates—the ability to deduct up to 20 percent of their qualified business income. Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income. 

Generally, taxpayers who earn less than $157,500, or $315,000 for joint filers, can deduct 20 percent of the income they receive from pass-through businesses. Taxpayers earning above those amounts who are not service professionals must meet certain criteria to take the full deduction.

The guidance includes:

  • A set of regulations finalizing proposed regulations issued last summer and a new set of proposed regulations providing guidance on several aspects of the deduction, including qualified REIT dividends received by regulated investment companies
  • A revenue procedure providing guidance on determining W-2 wages for deduction purposes
  • A notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the 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 pass-through deduction if certain requirements are met. Taxpayers can rely on this safe harbor until a final revenue procedure is issued.

The deduction is available in tax years beginning after Dec. 31, 2017 and is not available for wage or business income earned by a C corporation.

For more details about the Section 199A pass-through deduction, visit IRS.gov/taxreform.