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IRS 199A Final Regulations

IRS Issues Final §199A Regulations

Document Grows to 247 Pages and More Proposed Regs Issued

January 18, 2019 -- Today the IRS released the final regulations for the qualified business deduction (QBI) under §199A under the IRS code.

As MTAP members know, QBI can apply to certain individuals, partnerships, S corporations, trusts and estates. The regulations not only finalized the original 184 pages of proposed regulations issued in August, but added an additional 63 pages. These new regulations apply to taxable years ending in 2018.

Additionally, the IRS released new proposed regulations providing guidance on the treatment of previously suspended losses that constitute QBI. The regulations also provide guidance on the determination deduction for taxpayers that hold interests in regulated investment companies, charitable remainder trusts, and split-interest trusts.

The IRS also released Rev. Proc. 2019-11, providing procedures for calculating W-2 wages. The guidance provides three methods that can be used to calculate W-2 wages:

The first method, the unmodified Box method, allows for a simplified calculation. The second and third methods (the modified Box 1 method and the tracking wages method) provide greater accuracy. W-2 wages calculated under this revenue procedure are not necessarily the W-2 wages that are properly allocable to QBI and eligible for use in computing the section 199A limitations.

Lastly, the IRS issued Notice 2019-07 pertaining to §199A safe harbor for rental real estate enterprises. To qualify for treatment as a trade or business under this safe harbor, the rental real estate enterprise must satisfy the requirements of the proposed revenue procedure. If an enterprise fails to satisfy these requirements, the rental real estate enterprise may still be treated as a trade or business for purposes of §199A if the enterprise otherwise meets the definition of trade or business in §1.199A-1(b)(14).

To highlight some of the irony (or inconsistency) in the rules, an industry expert noted that the new regulations state that veterinarians don’t qualify for the deduction, yet rental real estate owners that spend at least 250 hours a year involved with the vet's business can get the deduction.

MTAP will continue to update members as more information and analysis of the regulations becomes available.

Members can find more information on §199A Resources in the members only section of the website: 

MTAP P.O. Box 398 Bath, MI 48808-0398