Under the new Section 199, I have ownership in 10 LLCs. Eight will have profits and two will have losses. Do I compute each one to get to the 20 percent reduction in income, or aggregate them all to arrive at the deduction? Assume that the income of the LLC ownership interests is over $600,000.
The new Section 199A, created under the Tax Cuts and Jobs Act of 2017, is a deduction available to any taxpayer other than a corporation. Section 199A specifically requires that a deduction be determined separately for each qualified trade or business. However, the statute does not specifically address how to compute the deduction for a taxpayer who operates multiple qualified trades or businesses, one or more of which generates a qualified business income, and other(s) that generate a qualified business loss.
A detailed analysis of the legislative text used in constructing the statute indicates that Congress intended for both positive and negative deductions to be available, both in current and future tax years. As such, as it pertains to this inquiry, the qualified business income/loss deduction should be computed for each LLC, and the result of all 10 deductions should be net to produce a positive or negative deduction.
Until further guidance is provided by the IRS, the Section 199A deduction should be calculated at each entity level and subsequently netted together to produce one positive or negative Section 199A deduction.
For further questions, as well as assistance with revisions to Section 199A as further guidance is provided, please consult a CPA.
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Answered by: Nathan A. DeFilippi, CPA, is a senior tax associate with H2R CPA in Pittsburgh.