Important Section 199A Tax Effects on Decision-making in 2020

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While your advisor handles the complex details and tax structure of your ag business, there are certain changes regarding Section 199A that have happened that business owners and operation managers should be aware of and factor into their decision-making.

Changes to Triple Net Leases and Section 199A QBI Deduction

WHY the changes:  Final Regulations under Section 199A were created to provide guidance and clarifications around language on issues addressed by the original Proposed Regulations.

WHAT is the impact:  The Final Regulations include certain “safe harbor” provisions that specifically do NOT apply to “triple net leases,” however, certain leases with commonly controlled businesses automatically qualify for the 199A deduction.

Lease with C-Corporation:

Leases with C-corporations under Final Regulations are NOT eligible for a “common control” automatic qualification, however, opportunities may still exist for those that otherwise qualify as trade or business.

How to capture this opportunity:

Businesses should evaluate existing leasing arrangements and where necessary consider revisions to certain roles and responsibilities of the landowner that may help qualify the landowner for the 199A deduction.

Word of caution:

In the right situation, triple net leases might make things simpler for the landlord, but in other situations it may result in lost tax deductions.

K·Coe recommends evaluating your leasing arrangements to be sure they qualify for the 199A deduction.  The answer is not black and white and depends heavily on facts and circumstances.  Contact us with questions on the regulations and applicability for your unique situation. Contact us to learn more.

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