REITs and PTPs are given special treatment in the Tax Relief and Employment Act (TCJA) – sorry, I can not call this tax reform. Maybe tax distortion, but it sounds stupid. TCJA repealed Article 199, a 9% deduction of a free giveaways, triggering a gambling craze in a limited circle of brewing coffee as manufacturing. Who do I mean? And replace it with the more extensive 20% deduction (Article 199A). If your taxable income exceeds the limit, your trade or business must pay W-2 payroll or depreciate assets. Real estate investment trust dividends and PTP distribution income get a 20% deduction, without any strings.
The object of the game
If the game covered by section 199A is completed on a board, it may not show chess or Go or Scrabble, but will certainly be more affected than Cat Classic “Settler” and “bus ticket” welcome. I’ve written a lot about this topic, so I’ll give you a quick executive summary. Singletons below the taxable income of $ 207,500 are twice the number of co-applicants and have some benefits to anyone with trading or operating income (ie, not from work or investment). Unlimited benefits began to be phased out for singles $ 157,500 and married for $ 315,000.
It has become more complicated on the elimination phase. First, as President Trump would say. It will be “Performance Services Represented by Investment and Investment Management, Trading or Stock Trading” and “Health Services, Legal, Accounting, Actuarial Science, Performing Arts, Counseling, Athletics, Financial Services, Brokerage Services or any Trade or Business, The main assets of these businesses or businesses are the reputation or skills of one or more of their employees or employers – the last one – no one knows what that means.
Then the W-2 request. Your deduction is the lesser of 20% of the net trade or business or 50% of the W-2 salary paid by the business. An alternative test paid 25% of W-2 salary plus 2.5% of the unadjusted basis of depreciation assets.
Real Estate Investment Trust and MLP – Free from jail
There is also a complete other category of income eligible for a 20% deduction – with almost no additional conditions – “20% of the total real estate investment trust dividend and eligible open partnership partnership income”.
Real Estate Investment Trust is a real estate investment trust. REITs are taxed as a corporation, but if it has the right mix of income, it can deduct the dividends it pays to shareholders. Shareholders earn ordinary income from these dividends unless they earn capital gains. A publicly traded partnership (sometimes referred to as the main limited partnership) is a partnership. In order not to be reclassified as a company, they need to have the right mix of income. They tend to focus on the energy sector but can have real estate.
Regardless of the distribution, the partnership will allot income or loss to the partner, but PTP has a special rule. Any loss from PTP will be suspended and entered into a bucket, which can only be used to offset revenue from the PTP or to be released upon disposal of the interest. Tax preparers hate PTP. Do not let me start.