Section 199A — Qualified Business Income Deduction Including Highlights of Proposed Regulations

Steve R. Akers recently published a summary of Section 199A entitled, Section 199A — Qualified Business Income Deduction Including Highlights of Proposed Regulations, Bessemer Trust, September 11, 2018. Provided below is an abstract of the summary.

Section 199A is an important provision in the 2017 Tax Act, permitting a 20% deduction for qualified business income from proprietorships or passthrough entities, subject to complicated limitations. Proposed regulations were issued on August 8, 2018 (184 pages of preamble and regulations!) for Sections 199A and 643(f) (regarding the multiple trust rule).

The proposed regulations provide substantial additions for administering the statutory provisions (some of which ar taxpayer-friendly and some of which are not). A few highlights include:

• Exceptions for “self-rental” property (as to the trade or business requirement) and for management companies (as to the W-2 limitation);
• Prohibitions on “cracking and packing” strategies (regarding limitations on the deduction for “specified service trades or businesses”); and
• Anti-abuse rules for trusts owning business interests