Yesterday, Senate Finance Committee member Steve Daines (R-MT) reintroduced legislation to make permanent the 20 percent deduction for pass-through business income (Section 199A), one of the cornerstone provisions of the Tax Cuts and Jobs Act of 2017 that expires at the end of 2025.
- House Ways and Means Committee Chairman Jason Smith (R-MO), who has long championed making Section 199A permanent, is anticipated to re-introduce the legislation in the House soon.
- In 2017, Congress created the 20% deduction for pass-through business income to avoid putting businesses organized as partnerships, S corporations (S corps), and real estate investment trusts (REITs) at a competitive disadvantage relative to large C corporations (C corps).
- Section 199A is scheduled to sunset on Dec. 31, 2025 as businesses continue to recover from post-pandemic price hikes, labor shortages, and supply chain disruptions.
Section 199A Permanency
- The Real Estate Roundtable and a coalition of more than 145 business organizations sent a letter yesterday to Sen. Daines in support of the bill. (Coalition letter, May 18)
- The letter notes that the bill “would provide certainty to the millions of S corporations, partnerships and sole proprietorships that rely on the Section 199A deduction to remain competitive both here and overseas.”
- Previously, The Roundtable and other stakeholders supported congressional efforts in 2021 to make the pass-through deduction permanent. (Coalition letter, Feb. 26, 2021 and Tax Notes, March 1, 2021)
While House Republicans are expected to introduce an economic growth package in the coming weeks that includes tax cuts, it is unclear whether the bill will address provisions such as Section 199A that are not scheduled to expire until the end of 2025.
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Two senior members of the House Ways and Means Committee introduced bipartisan legislation this week that would correct current condominium tax accounting rules.
Condo Accounting Relief
- House Ways and Means Committee members Bill Pascrell Jr., (D-NJ) and Vern Buchanan, (R-FL) on June 22 announced the Fair Accounting for Condominium Construction Act to encourage greater housing development in high-population and high density-areas. (Pascrell news release)
- Current condo tax accounting rules require multifamily developers of condominium buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer.
- Homebuilders of single-family homes, townhouses and row houses are not subject to this percentage-of-completion tax accounting rule restriction. As a result, current tax accounting rules discriminate against vertical condominium by unfairly accelerating federal income tax liability for new condominium construction.
- Rep. Pascrell’s legislation would provide for an exclusion from the percentage-of-completion method for condo construction.
- Roundtable President and CEO Jeffrey DeBoer said, “The Pascrell-Buchanan legislation will modernize the outdated percentage-of-completion tax accounting rules that discriminate against condominium construction. The bill will reduce the cost of building new housing, especially in high-cost areas where greater density is needed. The Real Estate Roundtable commends the sponsors for introducing a common sense measure that, when enacted, will help expand the nation’s housing supply.” (Pascrell news release)
Section 199A Support
- Separately, The Roundtable, as part of a broad business coalition, this week also weighed in on the 20-percent tax deduction for qualified business income (Section 199A), which was enacted as part of the 2017 Tax Cuts and Jobs Act. (Roundtable Weekly, April 2)
- Senate Finance Committee Chairman Ron Wyden (D-OR), above, reportedly plans to propose changes to Section 199A affecting partnerships, LLCs, and other entities taxed only at the individual owner level. According to BloombergTax, Wyden’s legislation, which is still being drafted, will likely aim to start phasing out the deduction for individuals making above $400,000 in annual business income. Wyden also plans to keep the deduction in place until it is scheduled to expire at the end of 2025.
- The business coalition’s June 22 letter to the leadership of the tax-writing Senate Finance and House Ways and Means Committees expressed strong opposition to any reductions or repeal of the Section 199A deduction, including phasing out the deduction above certain income thresholds.
- The coalition’s letter emphasizes how nearly 40 percent of individually- and family-owned businesses closed their doors during the COVID pandemic – and that Section 199A provided critical tax relief.
The June 22 letter adds, “Proposals to limit or repeal the deduction would hurt Main Street businesses and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country. Such changes would amount to a direct tax hike on America’s Main Street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.”
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The Real Estate Roundtable and a coalition of more than 100 business organizations yesterday sent a letter to Senate and House tax writers supporting legislation that would permanently extend the new 20 percent deduction for qualified pass-through business income. (Coalition letter, April 11)
The Real Estate Roundtable and a coalition of more than 100 business organizations yesterday sent a letter to Senate and House tax writers supporting legislation that would permanently extend the new 20 percent deduction for qualified pass-through business income.
(Coalition letter, April 11)
- Sen. Steve Daines (R-MT) introduced the Main Street Tax Certainty Act yesterday (S. 1149) to make the deduction permanent. The Senate bill mirrors legislation introduced in the House (H.R. 216) by Reps. Henry Cuellar (D-TX) and Jason Smith (R-MO).
- The 20 percent deduction for pass-through business income (under Internal Revenue Code section 199A) is one of the most important – and complex – elements of the 2017 tax overhaul law. The deduction was designed to provide relief to the 30 million businesses in the United States that are not C corporations, and thus don’t benefit from the corporate tax cut. It is currently scheduled to sunset at the end of 2025.
- The coalition letter states that the House and Senate bills to make the deduction permanent will help ensure tax relief for the millions of employers organized as partnerships, S corporations, and sole proprietorships. “Repealing this sunset will benefit millions of pass-through businesses, leading to higher economic growth and more employment,” according to the letter.
- The Treasury Department on Jan. 18 issued final regulations and new guidance on the 20 percent deduction. Proposed regulations issued alongside the final rules ensure that investors who receive REIT dividends indirectly through an interest in a mutual fund are eligible for the pass-through deduction. (Roundtable Weekly, Jan. 25, 2019)
- Yesterday, the IRS released a fact sheet (FS-2019-8) on the new section 199A deduction. Among the topics addressed are the qualified business income component, qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. (IRS news release, April 11)
The Section 199A deduction was a key topic of Roundtable President and CEO Jeffrey DeBoer’s testimony before the Senate Finance Committee in the fall of 2017, shortly before lawmakers released the first version of their tax overhaul. The Roundtable was closely involved in the legislative development of the provision. (Roundtable Weekly, Sept. 22, 2017)