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GLOSSARY OF TERMS
(1) A trust or estate must calculate its QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends, and qualified PTP income. (2) The QBI of a trust or estate must be computed by allocating qualified items of deduction described in § 199A(c)(3) in accordance with the classification of those deductions which are directly attributable to one class of income under §1.652(b)-3(a), and deductions not directly attributable within the meaning of §1.652(b)-3(b) (other deductions) are allocated in a manner consistent with the rules in §1.652(b)-3(b).8 (3) Any depletion and depreciation deductions and any amortization deductions that otherwise are properly included in the computation of QBI are included in the computation of QBI of the trust or estate, regardless of how those deductions may otherwise be allocated between the trust or estate and its beneficiaries for other purposes of the Code.9 b. Allocation Among Trust or Estate and Beneficiaries. — (1) The QBI (including any amounts that may be less than zero as calculated at the trust or estate level), W2 wages, UBIA of qualified property, qualified REIT dividends, and qualified PTP income of a trust or estate are allocated to each beneficiary and to the trust or estate based on the relative proportion of the trust's or estate's distributable net income (DNI), as defined by section 643(a), for the taxable year that is distributed or required
8 Items of deduction of a trust that enter into the computation of distributable net income are allocated among the items of income according to the following principles. All deductible items directly attributable to one class of income are allocated to that class of income. To the extent that any items of deduction which are directly attributable to a class of income exceed that class of income, they may be allocated to any other class of income, (including capital gains), included in distributable net income in the same manner provided for deductions which are not directly attributable to specific class of income. The deductions which are not directly attributable to a specific class of income may be allocated to any item of income, including capital gains, included in computing distributable net income, but a portion must be allocated to tax-exempt income. See Treas. Reg. § 1.652(b)-3(d). Treas. Reg. § 1.652(b)-3(b). 9 For property held in a trust, the allowable depletion and depreciation deductions are apportioned between the income beneficiaries and the trustee on the basis of the trust income allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a reserve for depletion depreciation in any amount. See Treas. Reg. § 1.167(a) -1(a); Treas. Reg. § 1.611-1(c)(4).
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to be distributed to the beneficiary or is retained by the trust or estate. (2) For this purpose, the trust's or estate's DNI is determined with regard to the separate share rule of section 663(c), but without regard to § 199A. If the trust or estate has no DNI for the taxable year, any QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends, and qualified PTP income are allocated entirely to the trust or estate. c. Threshold Amount. — The Threshold Amount applicable to a trust or estate is $157,500 for any taxable year beginning before 2019. For taxable years beginning after 2018, the threshold amount shall be $157,500 increased by a cost-ofliving adjustment. For purposes of determining whether a trust or estate has taxable income in excess of the threshold amount, the taxable income of the trust or estate is determined after taking into account any distribution deduction. d. Electing Small Business Trusts. — (1) An electing small business trust (ESBT) is entitled to the deduction under § 199A. Any § 199A deduction attributable to the assets in the S portion of the ESBT is to be taken into account by the S portion. (2) The S portion of the ESBT must take into account the QBI and other items from any S corporation owned by the ESBT, the grantor portion of the ESBT must take into account the QBI and other items from any assets treated as owned by a grantor or another person (owned portion) of a trust under sections 671 through 679, and the non S portion of the ESBT must take into account any QBI and other items from any other entities or assets owned by the ESBT. (3) For purposes of determining whether the taxable income of an ESBT exceeds the threshold amount, the S portion and the non-S portion of an ESBT are treated as a single trust. e. Anti-abuse Rule for Creation of a Trust to Avoid Exceeding the Threshold Amount. — A trust formed or funded
with a principal purpose of avoiding, or of using more than one, threshold amount for purposes of calculating the deduction under § 199A will not be respected as a separate trust entity for purposes of determining the threshold amount for purposes of § 199A.
GLOSSARY OF TERMS
The “Act” – Tax Cut and Jobs Act (Public Law No. 115-97). “Applicable Percentage” – with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio that the taxable income of the individual for the taxable year in excess of the threshold amount, bears to $50,000 (or $100,000 in the case of a joint return). “Combined Qualified Business Income Amount” – the sum of three separate amounts: (1) 20% of the taxpayer ’s “qualified business income” (QBI) from each “qualified trade or business” (QTB) (as limited by the “wage-basis limit,”); (2) 20% of the taxpayer ’s aggregate “qualified REIT dividends,”; and (3) 20% of the taxpayer ’s aggregate “qualified publicly traded partnership income.” “Depreciable Period” – with respect to qualified property of a trade or business, the period beginning on the date the property was first placed in service by the individual or RPE and ending on the later of (a) the date that is 10 years after such date; or (b) the last day of the last full year in the applicable recovery period that would apply to the property under section 168(c), regardless of any application of section 168(g) (the “alternative depreciation system” (ADS), which generally causes the recovery period of depreciable property to be longer than it would otherwise be under ¬§ 168. “Excess Amount” – equal to 20% QBI over the W-2 Wage/Basis Limitation as otherwise calculated. “Net Capital Gain” – net capital gain (excess of net long-term capital gain for the taxable year over the net short-term capital loss) plus any qualified dividend income for the taxable year. “Phase-In Range” – a range of taxable income, the lower limit of which is the threshold amount, and the upper limit of which is the threshold amount plus $50,000 (or $100,000 in the case of a joint return). “QBI Component (QBIC)” – for each trade or business (including trades or businesses operated through RPEs) the individual must determine the lesser of (1) 20 percent of the QBI for that trade or business (“20% of QBI”); or (2) the greater
of (the “W-2 Wage/Basis Limitation”): (i) 50 percent of W-2 wages with respect to that trade or business, or (ii) the sum of 25 percent of W02 wages with respect to that trade or business plus 2.5 percent of the UBIA of qualified property with respect to that trade or business. “Qualified Business Income (QBI)” – for any taxable year, the net amount of “qualified items” of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. QBI does not include any qualified REIT dividends or qualified publicly traded partnership income. “Qualified Business or Trade” – any trade or business other than (i) a “specified service trade or business” or “SSTB”, or (ii) the trade or business of performing services as an employee. “Qualified Items of Income, Gain, Deduction, and Loss” – items of income, gain, deduction, and loss to the extent such items are: (1) effectively connected with the conduct of a trade or business within the United States; and (2) included or allowed in determining taxable income for the taxable year. “Qualified Property” – with respect to any trade or business (or aggregated trade or business) of an individual or RPE for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167(a): (a) which is held by, and available for use in, the trade or business (or aggregate trade or business) at the close of the taxable year; (b) which is used at any point during the taxable year in the trade or business’s (or aggregate trade or business’s) production of QBI; and (c) the depreciable period for which has not ended before the close of the individual’s or RPE’s taxable year. “Qualified PTP Income” – the sum of (1) the net amount of such taxpayer ’s allocable share of income, gain, deduction, and loss from a publicly traded partnership, plus (2) any gain or loss attributable to assets of the publicly traded partnership giving rise to ordinary income that is considered attributable to the trades or businesses conducted by the partnership. “Qualified REIT Dividends” – any dividend from a REIT received during the taxable year which: (1) is not a capital gain dividend, and (2) is not qualified dividend income. A REIT dividend is not a qualified REIT dividend if the stock with respect to which it is received is held for fewer than 45 days.
“Reduction Amount” – With respect to any taxable year, the excess amount multiplied by the ratio that the taxable income of the individual for the taxable year in excess of the threshold amount, bears to $50,000 (or $100,000 in the case of a joint return). “Relevant Passthrough Entity” – include partnerships (except for PTPs which are treated separately) and S corporations that are directly or indirectly owned by at least one individual, trust, or estate. A trust is also an RPE to the extent it passes through QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends, or qualified PTP income to a beneficiary or beneficiaries. “Rental Real Estate Enterprise” – an interest in real property [or multiple properties] held for the production of rents. “Rental Services” – may be performed by owners, employees, agents, and independent contractors. They include the following: (i) advertising to rent or lease the real estate; (ii) negotiating and executing leases; (iii) verifying information contained in prospective tenant applications; (iv) collecting rent; (v) daily operation, maintenance, and repair of property; (vi) management of the real estate; (vii) purchase of materials; and (viii) supervision of employees and independent contractors. They do not include financial or investment management activities, such as: arranging financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate. “Specified Service Trade or Business” – any trade or business which is any of the following fields: (i) health; (ii) law; (iii) accounting; (iv) actuarial science; (v) performing arts; (vi) consulting; (vii) athletics; (viii) financial services; (ix) brokerage services; (x) investing and investment management; (xi) trading; (xii) dealing in securities; or (xiii) any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners. “ Threshold Amount” – for any taxable year beginning before 2019, $157,500, (or $315,000 in the case of a taxpayer filing a joint return). This figure will be adjusted by a cost-of-living adjustment on an annual basis.
