Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

SECTION 199A CALCULATION CHANGE 2019 RETURNS

Highlighted
Level 3

I just got the 2019 8879's from a client I did Feb 22nd 2020 and the Fed bottom lines are dramatically different right now.  All numbers look the same except the 199A deduction which increased significantly.  The business income is from a non-active participation S-Corp with $50k gross income and $74K section 179.  There is also a separate commercial rental with a net income of $25k. 

Original return showed the net QBI as the 25$k from the rental minus the $24k loss from the K-1 for $1,000 net QBI. 

The new worksheet for QBI now adds back the disallowed 179 leaving the S-Corp business with a positive of nearly $26k instead of a loss of about $24k shooting the QBI from about $1,000 to $51k!

Nothing else in the tax return has changed.  Has the law changed for calculating QBI during tax season?

Labels (1)
0 Cheers
1 Solution

Accepted Solutions
Highlighted
Level 15

What Lacerte is doing is correct.  §199A can only take into account what is allowed in the current tax year.  To the extent §179 is suspended and PAL disallowed, these amounts cannot be taken into account for purposes of §199A.  That is the reason why Lacerte added back the suspended §179.

The key is whether your client has sufficient active ToB income (which includes compensation) for §179 to be allowed since the income from S-corp is passive.  Since Lacerte has $26k (-24k S-Corp Loss + $50k §179 Disallowed) for QBI from the S-Corp, that tells me only $24k of the §179 is allowed.  But this doesn't make sense because the net ToB income from the commercial alone is already $25k, which means at least $25k of §179 should have been allowed - of course, unless there is $1k of business loss you didn't tell us about.

Let's change your numbers a little for illustration:

  • Commercial Rental QBI: $25k
  • S-Corp (Passive): $50k ordinary income + $74k §179
  • Wages: $30k

Here's how the numbers should play out in Lacerte:

  • §179 Allowed: $25k + $30k = $55k
  • §179 Disallowed: $74k - $55k = $19k
  • S-Corp Income/Loss: $50k - $55k = ($5k) = $50k - $74k + $19k
  • PAL: ($5k) since it's smaller than $25k of passive income from commercial rental
  • F.8995: $25k from commercial rental + ($5k) from S-Corp = $20k in Total QBI
---------------------------------------------------------------------------------
Still an AllStar

View solution in original post

5 Replies 5
Highlighted
Level 11

Did you know that Intuit's Accountants Community has an "Unexpected Behaviors" section? There is a reference to it in this thread, which might relate to your problem.  At least, the initial question relates to your problem.  Ignore the resulting tangent (definitely an unexpected behavior) discussion of charitable contributions.  Is it possible that the tax programs had a problem, they were fixed, and then reverted to the same error when something else was subsequently "fixed" ?

https://proconnect.intuit.com/community/lacerte-discussions/discussion/shouldn-t-qbi-be-reduced-by-s...

 

     The Isle of Wight has designated "Social Distance" as two meters or the length of a cow.

Highlighted
Level 15

What Lacerte is doing is correct.  §199A can only take into account what is allowed in the current tax year.  To the extent §179 is suspended and PAL disallowed, these amounts cannot be taken into account for purposes of §199A.  That is the reason why Lacerte added back the suspended §179.

The key is whether your client has sufficient active ToB income (which includes compensation) for §179 to be allowed since the income from S-corp is passive.  Since Lacerte has $26k (-24k S-Corp Loss + $50k §179 Disallowed) for QBI from the S-Corp, that tells me only $24k of the §179 is allowed.  But this doesn't make sense because the net ToB income from the commercial alone is already $25k, which means at least $25k of §179 should have been allowed - of course, unless there is $1k of business loss you didn't tell us about.

Let's change your numbers a little for illustration:

  • Commercial Rental QBI: $25k
  • S-Corp (Passive): $50k ordinary income + $74k §179
  • Wages: $30k

Here's how the numbers should play out in Lacerte:

  • §179 Allowed: $25k + $30k = $55k
  • §179 Disallowed: $74k - $55k = $19k
  • S-Corp Income/Loss: $50k - $55k = ($5k) = $50k - $74k + $19k
  • PAL: ($5k) since it's smaller than $25k of passive income from commercial rental
  • F.8995: $25k from commercial rental + ($5k) from S-Corp = $20k in Total QBI
---------------------------------------------------------------------------------
Still an AllStar

View solution in original post

Highlighted
Level 15

I must, however, admit that Lacerte's presentation of the following is not the most Intuit(ive):

  • S-Corp Income/Loss: $50k - $74k + $19k (§179 disallowed)

It'd be easier to understand if it's presented this way:

  • $50k - $55k (§179 allowed)

 

---------------------------------------------------------------------------------
Still an AllStar
Highlighted
Level 3

Thanks, 

Laid out this way in your example helped to see that it looks like the program is now calculating the QBI correctly when was not earlier in the tax filing season (there were no changes to the inputted return from the time it was printed to now).  Scary part is if this was an isolated incident, or a problem between updates, etc... that might have affected other returns.

 

Thanks again!

0 Cheers
Highlighted
Level 15

NP, @Drphibes! Glad this was of help.

---------------------------------------------------------------------------------
Still an AllStar
0 Cheers