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Additional Final Regulations Issued on Section 199A Deduction and Suspended Loss Rules (T.D. 9899)

Additional Final Regulations on Section 199A

The IRS has released “additional final regulations” on the Sec. 199A qualified business income (QBI) deduction under Code §199A. This additional guidance allows a shareholder in a Regulated Investment Company (RIC) (i.e., as defined in Code §851(a)) to take a QBI deduction with respect to certain income of, or distributions from, the RIC.

Furthermore, the regulations guide (1) the treatment of previously disallowed losses that are included in QBI in subsequent years and (2) interests held in split-interest or charitable remainder trusts. The final regulations apply to tax years beginning after 8/24/20. However, taxpayers may elect to apply the regulations to tax years beginning on or before 8/24/20. Alternatively, taxpayers who chose to rely on regulations initially proposed in February 2019 (REG-134652-18) for tax years beginning on or before 8/24/20 may continue to do so for such years.  (Code §199A; Sec. 199A Deduction)

Comment: A more common situation is where you have losses or deductions (e.g., K-1 losses or Sec. 179 immediate expensing) suspended due to a number of reasons such as the lack of basis, or at-risk basis, or the passive loss rules. In such instances, it is critical to separate and keep track of pre-2018 v. post-2017 amounts since when the former items eventually free up, they do not reduce “qualified business income” for purposes of the Section 199A deduction. The reason is that when they first came into existence (i.e., in a pre-2018 tax year), Code §199A was not even yet in the law. So, even if the tax benefit of these amounts is first realized in a post-2017 tax year, they will not serve to reduce any QBI otherwise eligible for the 20 percent Section 199A deduction.


Authored by:

Dr. John Connors, JD, CPA, LLM

Tax Educator’s Network, LLC

[email protected]


For subscription information on Dr. John Connors’ educational materials, click here.