One of the most difficult tasks tax practitioners are facing this tax season is the determination of whether their clients’ rentals rise t the level of trade or business for purposes of the Sec 199A deduction.
Regrettably, the most misunderstood issue for preparing taxes for 2018 could be the most significant - the issue of when a rental activity is a trade or business qualified for the new Sec 199A deduction. The final regulation (§1.199A-1(b)(14)) defines a trade or business as being the same as trade or business under Code Sec. 162.
The Sec. 199A deduction has stirred up a lot of controversy in the tax preparation community related to whether landlords are subject to information reporting requirements, typically filing and issuing 1099-MISC forms for annual payments of $600 or more to unincorporated service providers such as plumbers, the pool guy, gardeners, etc. And unfortunately, the government has added substantially to that confusion.
Several states, in an effort to circumvent the $10,000 limit on state and local tax deductions imposed by the TCJA, have established charitable funds and then give contributors to the funds a credit, based on a percentage of the amount contributed, against their state, and in some cases, local taxes. The result is a conversion of a limited tax deduction into a charitable contribution deduction. IRS has issued proposed regulations that squash these attempted workarounds. The regs, which apply to post-8/27/18 contributions, specify the charitable contribution in these cases is the difference between the contribution amount and the tax credit.
As sure as the sun rises every morning you stand a good chance of encountering a taxpayer who has violated the one rollover a year rule for IRAs. This article includes how that rule is applied, exceptions to the rule and the tax consequences.