The New Qualified Business Income Deduction

Concerns and Strategies for Real Estate Professionals

Paige D. Bressler, PhD, CPA, and Michael Killey, PhD, CPA

One of the most significant consequences of the Tax Cuts and Jobs Act of 2017 (TCJA) for taxpayers is the new Internal Revenue Code (IRC) section 199A, which allows a tax deduction for qualified business income (QBI). This provision provides unique opportunities and challenges to individuals engaged in certain real estate activities. Given the tax treatment afforded to investors in qualified real estate investment trusts (REIT) and publicly traded partnerships (PTP), the new IRC section 199A is significantly more advantageous to real estate professionals than those engaged in other trades or businesses. Consequently, the application of the provision to specific real estate transactions is uncertain. While the proposed regulations issued on August 8, 2018, address concerns about the new statute, certain material questions are left unanswered. Despite minimal guidance, there are still many tax-saving opportunities available to savvy taxpayers. This article summarizes tax strategies that individuals can utilize in order to maximize their tax deductions.