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Tax Reform and Section 199A Deduction of Qualified Business Income of Pass-Through Entities

Posted by on 04.10.18

Tax Reform and Section 199A Deduction of Qualified Business Income of Pass-Through Entities

On Friday, December 22, President Trump signed sweeping tax reform (the “Act”) into law. The Act provides the most comprehensive update to the tax code since 1986 and includes a number of provisions of particular interest to partnerships and their partners. This alert addresses the Section 199A deduction for qualified business income of pass-through entities.

Section 199A Deduction for Qualified Business Income of Pass-Through Entities
General Rule
For tax years beginning after December 31, 2017, taxpayers other than corporations will generally be entitled to a deduction for each taxable year equal to the sum of:

The lesser of (A) the taxpayer’s “combined qualified business income amount” or (B) 20 percent of the excess of the taxpayer’s taxable income for the taxable year over any net capital gain plus the aggregate amount of qualified cooperative dividends, plus

The lesser of (A) 20 percent of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year or (B) the taxpayer’s taxable income (reduced by the net capital gain).

A taxpayer’s combined qualified business income (QBI) amount is generally equal to the sum of (A) 20 percent of the taxpayer’s QBI with respect to each qualified trade or business plus (B) 20 percent of the aggregate amount of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
 

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