The enactment of section 199A as part of the Tax Cuts and Jobs Act of 2017 created a 20 percent deduction on qualified business income (QBI). The section 199A 20 percent deduction applies to income of a qualified trade or business and is subject to two limitations: one based upon the w-2 wages paid by the business (the “w-2 wage limit”) and one based upon a combination of w-2 wages paid and the unadjusted basis of the qualifying property of the trade or business (the “unadjusted basis limit”). With the passage of the last several months, issues are emerging with respect to how these limitations apply to section 1031 exchanges. This article addresses three of those issues: (1) the effect year-straddling exchanges have on the unadjusted basis limit; (2) the section 199A unadjusted basis of replacement property; and (3) the extent to which real property ownership is a qualified trade or business under section 199A.
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