199A Proposed Regs or Final: Use What Is Best for 2018 Tax Returns
The Final 199A regulations issued last Friday indicated that a taxpayer could use either the proposed regulations issued in August of 2018 or the final regulations when preparing their 2018 income tax returns.
One area where the proposed regulations are better than the final regulations is in regards to having rental income paid by a C corporation under common ownership be treated as QBI.
Under the proposed regulations, rents could be paid by a C corporation under common ownership and have that rental income qualify as QBI. The final regulations specifically states that this rent needs to be paid by either an individual or RPE (relevant pass-through entity).
Therefore, for farmers who farm as a C corporation and pay rent to themselves or an RPE, for 2018 only, you may go ahead and treat that rent income as QBI.
For 2019 and thereafter, none of that rent income will automatically qualify as QBI. The safe harbor outlined in our previous post will grant you QBI status, however, that requires working as a landlord at least 250 hours and it may subject you to SE tax.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
So, my understanding is that triple net lease income is NOT QBI UNLESS it is paid in a common ownership scenario. Is that correct?
Thanks for your help!