How To Claim The 20% Pass Through Deduction? Section 199A.

Question

I was looking over the schedule C form, and I dont quite see how one claims the 20% pass through, QBI.  Any of you tax experts out there have guidance? @Brandon Hall @Natalie Kolodij

Eamonn McElroy · Answer

@Russell Brazil

"Page" 2 of the 2018 Form 1040, line 9.

https://www.irs.gov/pub/irs-dft/f1040--dft.pdf

There is no form for the calculation itself.  Worksheets will be utilized by tax software for that part.

Lance Lvovsky · Answer

The deduction is taken on Form 1040, not on Schedule C.

Marina Draper · Answer

Hi Russell, great question! The new 20% pass-through deduction can be a huge tax saving for those who qualify.

If your taxable income is under $157,500 (single) or $315,000 (married filing jointly), you are eligible for a 20% reduction of your income from pass-through entities. So pretty much 20% of your eligible business income is tax-free!

Pass-through entities are Schedule C businesses, partnerships, S-Corporations, and rental businesses (Schedule E) and LLC's who are taxes as the above entities.

The income from each entity is treated separately, therefore, a loss from one entity cannot offset income from another entity.

Capital gains are excluded from the the pass-through deduction calculation. This deduction is relevant only for income related to a trade or business or passive real estate income.

Marina Draper · Answer

Hi Christopher, the rule is that you have to calculate the pass-through deduction separately for each business and then combine them to calculate the total 199A deduction. When there are multiple activities involved and one or more have negative QBI (QUalified Business Income), but the total is positive, the QBI for the positive QBI activities is proportionally reduced by the negative QBI before computing the 199A deduction and the ones that were negative will have no 199A deduction and no carryover

Christopher Smith · Answer

I called my software provider and they said they are still developing their system architecture for complete 199A input and reporting.

I thought for purposes of the 199A calculation benefit you had to reduce porpotionately income generating activity amounts by loss generating activity amounts. In other words, you can't take a 199A benefit for the full amount of income generating activities unreduced by loss generating activities if you have any.

For example, I have one property that will report a taxable loss this year (2018) which it's my understanding that I will need to allocate that loss against all my other properties which report substantial income.

So ultimately I can't claim an aggregate 199A benefit on the gross total from my income generating properties alone, I will need to perform a net calc across all 199A eligible properties.

Feel free to correct me, I haven't reviewed the latest and the greatest on this provision.

How To Claim The 20% Pass Through Deduction? Section 199A.

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