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Post Date:  8/15/2018
Last Updated:  8/15/2018

Summary
Cross References
- IRC §d;199A
- REG-107892-18
- Notice 2018-64

In August 2018, the IRS released guidance for the pass-through entity deduction. Taxpayers may rely on this guidance until the final regulations are issued. The guidance provides clarification on many issues related to the computation of the deduction, as well as details on how taxpayers may qualify for the deduction.

Computation of Deduction
For tax years beginning after December 31, 2017 and before January 1, 2026, an individual taxpayer generally may deduct 20% of qualified business income (QBI) from a partnership, S corporation, or sole proprietorship, as well as 20% of aggregate qualified REIT dividends, qualified cooperative dividends, and qualified publicly traded partnership (PTP) income. In the case of a relevant pass-through entity (RPE) (a partnership or S corporation), the deduction applies at the partner or shareholder level.

A limitation based on Form W-2 wages and capital is phased in when the taxpayer's taxable income exceeds a threshold amount. A disallowance of the deduction with respect to specified service trades or businesses (SSTBs) is also phased in when taxable income exceeds the threshold amount. For purposes of this provision, taxable income is computed without regard to the 20% deduction.

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