What Exactly Qualifies as Business Income?

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The AICPA has identified 11 areas of qualified business income that the organization believes warrant more guidance and that affect individuals, partnerships, S-corporations as well as trusts and estates doing domestic business.

The following specific areas are believed by the Institute to be the highest priority in which guidance is needed and included proposed answers:

  • Qualification of rental real estate as a trade or business
  • Modification of the rental property recharacterization rule (Prop. Reg. §1.199A-5(c)(2))
  • Clarification of the de minimis rule in the allocation between specified service trade or business (SSTB) and non-SSTB Activities
  • Clarification on the definition of qualified business income (QBI)
  • Treatment of the ordering rule for sections 465, 469, 704(d), and 1366(d)
  • Interaction of section 199A with section 461(l) for purposes of calculating QBI
  • Treatment of relevant passthrough entities (RPEs)
  • Clarification on the aggregation rules
  • Effect of sections 743(b) and 734(b) basis adjustments on unadjusted basis immediately after acquisition (UBIA) of qualified property
  • Effect of sections 351, 721, and 1031 on UBIA of qualified property and the depreciable period

The AICPA also included an appendix of other issues it believes affect QBI that warrant guidance.

The proposed rules on the qualified business income deduction were issued under REG-107892-18, IRS Notice 2018-64 on “Methods for Calculating W-2 Wages for Purposes of Section 199A,” and IRS Frequently Asked Questions (FAQs) on the “Tax Cuts and Jobs Act, Provision 11011 Section 199A – Deduction for Qualified Business Income.”

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About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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