Proposed regulations provide guidance on computing the Section 199A deduction

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September 2018

Overview

The IRS and Treasury Department recently published proposed regulations under Section 199A, dealing with a non-corporate taxpayer’s 20% deduction of ‘combined qualified business income’ (generally, qualified business income from partnerships, S corporations, sole proprietorships, trusts, and estates, plus real estate investment trust (REIT) dividends and publicly traded partnership (PTP) income). Section 199A was added by the 2017 tax reform act (the Act). The proposed regulations also provide rules under Section 643 dealing with trusts.

Contemporaneously with release of these regulations, the IRS released Notice 2018-64, proposing a Section 199A revenue procedure on methods for calculating W-2 wages, and frequently asked questions on the Section 199A This insight discusses the computational rules, including the limitations on the deduction and the aggregation of trades or businesses, in depth. A separate insight will discuss the rules relating to specified service trades or businesses and the performance of services as an employee.

Comments on the proposed regulations are due by October 1, 2018. A public hearing is scheduled for October 16, 2018. Outlines of topics to be discussed at the public hearing are due by October 1, 2018.

PwC professionals will discuss the new Section 199A guidance in a Tax Reform Readiness series webcast on Wednesday, October 10, at 2:00 PM EDT. Registration details for the webcast are available here. The webcast held on August 30, 2018, may be viewed here.

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The takeaway

The qualification and quantification rules of Section 199A, and the computations of the various limitations, are very complex. However, eligible taxpayers can achieve significant federal income tax benefits from this provision over a number of tax years. PwC will publish a detailed analysis of the extensive rules defining a specified service trade or business.

Please join us for the Tax Reform Readiness series webcast on Wednesday, October 10, at 2:00 PM EDT. Registration details for the webcast are available here.

Contact us

George Manousos

Partner, Federal Tax Services, PwC US

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