Source: https://www.jdsupra.com/legalnews/passthrough-deduction-regulations-59532/
Timestamp: 2019-08-20 06:23:46
Document Index: 406023372

Matched Legal Cases: ['§ 1', '§ 1', '§ 481', '§ 1033', '§ 280', '§ 864', '§ 751']

“Passthrough Deduction” Regulations Finalized | Proskauer - Tax Talks - JDSupra
Richard Corn, Michael Fernhoff, Mitchell Gaswirth, Martin Hamilton, Malcolm Hochenberg, Scott Jones, Mary Kuusisto, Arnold May, David Miller, Jeremy Naylor, Amanda Nussbaum, Alan Parnes, Jamiel Poindexter, Stuart Rosow, Yomarie Habenicht
Only qualified business income gives rise to the passthrough deduction. QBI is the net amount of “qualified items” of income, gain, deduction, and loss with respect to any trade or business of the taxpayer.[14] Qualified items of income, gain, deduction, and loss are items of gross income, gain, deduction, and loss but only to the extent those items are “effectively connected with the conduct of a trade or business within the United States” and included or allowed to be included in the determination of taxable income for the taxable year,[15] and do not include certain passive items, such as capital gain or loss, dividend income, and interest income (other than interest income that is properly allocable to a trade or business).[16] Generally, income is effectively connected with the conduct of a trade or business within the United States if it is derived from assets which are used in or held for use in the United States, and the activities of the U.S. business were a material factor in the realization of the income.[17] The Final Regulations also provide that gains or losses attributable to unrealized receivables and inventory items of the partnership that give rise to ordinary income are attributable to the trades or businesses conducted by the partnership and are taken into account for computing QBI.[18] In addition, the Final Regulations provide that adjustments to taxable income as a result of a change in accounting method are taken into account for purposes of computing QBI if the adjustment rises in taxable years ending after December 31, 2017.[19]
In addition, disallowed losses (i.e., losses that the taxpayer was not able to deduct in a previous taxable year) are used in order from the oldest to the most recent on a first-in, first-out basis. Previously disallowed losses include losses under sections 465, 469, 704(d) and 1366(d). Treas. Reg. § 1.199A-3(b)(1)(iv). The Proposed Regulations did not specify the order in which the losses would be used. Only disallowed losses incurred in taxable years beginning on or after January 1, 2018 are taken into account for purposes of calculating QBI. Treas. Reg. § 1.199A-3(b)(1)(iv).
Section 481 - Adjustments required by changes in method of accounting , 26 U.S.C. § 481
Section 1033 - Involuntary conversions , 26 U.S.C. § 1033
Section 280A - Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc. , 26 U.S.C. § 280A
Section 864 - Definitions and special rules , 26 U.S.C. § 864
Section 751 - Unrealized receivables and inventory items , 26 U.S.C. § 751