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Prior to our Facebook Live program last week, two questions were asked on our Facebook page regarding Section 199A changes. We thought we would provide our guest and upcoming seminar speaker Dennis Ponton’s answers over here on our blog. Take a look at the Q&A below:
Q: Can you please clarify what assets are included on the QBI unadjusted basis? Are the last 10 years of assets, whether they are fully depreciated or not, and any older assets still being depreciated?
A: 3, 5, 7, and 10 year depreciable property purchased in 2009 or later qualifies, regardless of whether it is fully depreciated or not, as does any other depreciable property that has not surpassed its useful life. Land is not a qualifying asset nor are refinance costs. Property must be tangible and subject to depreciation allowance. Intangible assets are not qualified assets.
Q: Income to be reported as 199A comes from page 1 of 1120s and/or page 1 of 1065 (not adding or subtracting any other k1 items)? And for 1065s with rental property, QBI income is bottom line of 8825. Is this correct?
A: Line 1 income will need to be reduced by any Section 179 deduction taken at the individual level and any other specially allocated depreciation allowance passed through to a partner. A partner is allowed a basis adjustment for their 743(b) adjustment. This is calculated per the regs and is called excess basis.
For rental property – straight up with no 743(b) adjustments, QBI is the bottom line income on form 8825 assuming that the property meets the definition of a trade or business under 162 or it can meet the safe-harbor 250 hour test. The entity will have to decide if it is aggregating multiple properties for purposes of the 250 hour test or if it intends that each property be its own enterprise.
For more information about Section 199A, tune into our Facebook Live.