In a nutshell, the Sec 199A Qualified Business Income tax cut gives the owners of pass-through businesses like sole proprietors, partnerships, S corporations and then real estate investors a deduction equal to 20% of qualified business income.
This deduction will produce big savings for many pass-through entities and real estate investors. But the deduction comes with some tricky calculations and complicated limitations. To understand and begin planning for the deduction, therefore, you need to dig into the details.
What is Sec 199A Qualified Business Income?
The qualified business income talked about in Sec 199A—that’s the new section of law that creates the deduction—includes the profit from an active trade or business and then also rental income as long as you operate as a pass-through entity.
More specifically, this means your qualified business income includes the bottom-line profits from an active trade or business as shown on the Schedule C form and in box 1 of a partnership or S corporation K-1, the rental income shown on a Schedule E form and in boxes 2 and 3 of a partnership or S corporation K-1, and then not the capital gains but rather the Sec. 1231 gains that may occur when a business sells assets used in the business.
