Section 199A in Real Estate Transactions: Taking Advantage of the Qualified Business Income Deduction

Recording of a 90-minute premium CLE webinar with Q&A

Conducted on Thursday, November 21, 2019

Recorded event now available

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Course Materials

This CLE course will provide counsel with tools to structure real estate transactions to take full advantage of the new qualified business income (QBI) deduction under IRC 199A. The panel will discuss the requirements and limitations of 199A, the follow-up IRS regulations for 199A, and planning techniques to maximize tax savings for pass-through entities.

Description

One of the most significant features of the 2017 tax reform is the new 20% deduction available to non-corporate taxpayers for their QBI. As pass-through entities are typically the vehicles of choice for real estate transactions in the U.S., the QBI deduction as codified under IRC 199A represents a real opportunity for the industry.

Section 199A generally limits the deduction attributable to a pass-through business to the greater of: (1) 50% of the individual's W-2 wages paid with respect to the qualified trade or business, or (2) the sum of 25% of such W-2 wages plus 2.5% of the tax basis immediately after its acquisition of the business' qualified property.

Rental income must be "effectively connected" with a U.S. trade or business as defined in IRC 864(c). Whether or not income such as rent is "effectively connected" depends on whether the income derives from assets used in the business (asset use test) and whether the activities of the business are a material factor in realizing the income (business activities test).

Real estate counsel must have a thorough understanding of 199A and its limitations when advising on entity structures and operations. Determination of a real estate entity's eligibility for the deduction, and any actions needed to maximize the deduction should be made at the deal structuring stage.

Listen as our panel analyzes the potential tax benefits and limitations of 199A in real estate transactions and outlines tax planning strategies to take advantage of the QBI deductions for real estate owner-operators.

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Outline

  1. Requirements of 199A and accompanying regulations
  2. Non-corporate entities that benefit from 199A: pass-through entities, REITs
  3. Defining QBI: rental and other business income
  4. Claiming the 199A deduction on individual returns
  5. Limitations on certain types of businesses or services
  6. Tax planning considerations

Benefits

The panel will review these and other relevant issues:

  • What are the potential tax benefits of 199A?
  • What are the entity requirements of claiming the deduction?
  • What is QBI, and how is it calculated?
  • When can rental income be treated as QBI?
  • What are some tax pitfalls to consider when reforming an entity to take advantage of 199A?

Faculty

Nitti, Len
Leonard Nitti, CPA, MST
Shareholder
Wilkin Guttenplan

Mr. Nitti has a broad range of clientele including closely-held businesses, high net worth individuals, professional...  |  Read More

Ritter, David
David J. Ritter
Member
Brach Eichler

Mr. Ritter has been providing counsel on income and estate tax planning for individuals as well as their businesses and...  |  Read More

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