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Foreign assets in UBIA calculation

Mayday981
Level 3

Does anybody know if foreign assets are included as qualified property for UBIA purposes? I'm trying to work on some projections now and I'm not seeing anything specifically in the code excluding them.

Thanks in advance for any help.

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itonewbie
Level 15

I agree with @Code_Reader.  The key is how Qualified Property is defined under §199A(b)(6) by reference to QBI (under subparagraph (A)(ii)), which, as @Code_Reader says, must be US-ECI, pursuant to §199A(c)(3)(A)(i).  Treas. Reg. §1.199A-2(c), which deals with UBIA of qualified property, then paraphrases what's already in the Code.

In other words, unless the foreign asset produces QBI, which must be US-ECI, it is not a qualified property for purposes of §199A and does not, therefore, have any UBIA as defined under Treas. Reg. §1.199A-2(c)(3).

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Code_Reader
Level 2

Interesting question. (c)(3)(A)(i) defines qualified business income as "effectively connected with the conduct of a trade or business within the United States". While this doesn't answer our question, it may point us toward intent. Does the taxpayer have foreign assets used to produce income for an "effectively connected" business?

(b)(2)(B)(ii) references qualified property used to determine the 2.5%. (b)(6)(A)(i) & (ii) again point us to a qualified business, which we know needs to be within the U.S. I can think of a few scenarios where a taxpayer would have assets outside the U.S., which assets would support a business conducted in the U.S.,but it certainly isn't a common scenario. The regs do not seem to mention it either. I'm curiou s to see if there is any other input.

itonewbie
Level 15

I agree with @Code_Reader.  The key is how Qualified Property is defined under §199A(b)(6) by reference to QBI (under subparagraph (A)(ii)), which, as @Code_Reader says, must be US-ECI, pursuant to §199A(c)(3)(A)(i).  Treas. Reg. §1.199A-2(c), which deals with UBIA of qualified property, then paraphrases what's already in the Code.

In other words, unless the foreign asset produces QBI, which must be US-ECI, it is not a qualified property for purposes of §199A and does not, therefore, have any UBIA as defined under Treas. Reg. §1.199A-2(c)(3).

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Mayday981
Level 3

Thank you. I appreciate the code sections and I agree that foreign assets should not be included. 

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Mayday981
Level 3

Thanks for the reply. I was trying to see if there was anything that said foreign assets were specifically excluded. But I think from that explanation it makes sense that it should only be US assets. 

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itonewbie
Level 15

NP, @Mayday981!  Glad to be of help.

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Terry53029
Level 11
Level 11

I believe as long as the assets meet the definition, and are used in production of QBI income they can be used.

Qualified property is defined as tangible depreciable property. To be considered qualified property, the fixed asset must fall into a depreciable period as defined by the regulations. For purposes of UBIA, the depreciable period starts on the date that the property is placed into service, and ends the later of, the last day of the depreciable period or for 10 years. The property must be used in the production of QBI in order to qualify for the UBIA computation.

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