The rules retain a provision meant to simplify record-keeping if companies only have a small amount of income from ineligible activities, such as health or law. If less than 10 percent of the income is from ineligible sources, the company can still get the full deduction on all its profits.
Despite Treasury rules making it more clear how the law is implemented, the deduction isn’t available evenly, even within industries, said Mike Greenwald, a partner at accounting firm Friedman LLP. A long-time building owner may not be able to get the tax break, while newer buyers might be able to get the deduction because they’ve invested more capital in the building, he said.
‘Anomalous Results’
“We’re seeing a lot of anomalous results,” said Greenwald.
Donald Susswein, a pass-through tax specialist who’s a principal in the Washington National Tax unit of RSM US LLP, said the final rules allow taxpayers to choose whether to use prior proposed regulations or the final regulations when preparing their returns.
Ordinarily, final rules supersede earlier rules, but this time the Treasury Department made an exception because many taxpayers had already put their accountants to work for the filing season. “It’s unusual,” he said.
One thing the final rules didn’t clarify, Susswein said, concerns taxpayers with multiple trades and businesses held within the same entity.
For example, he said it’s not clear how much of a deduction would be available to an optometrist who sees patients, a service business subject to the cap, and also grinds lenses, a manufacturing business that is not.
Howard Wagner, a national tax services partner at Crowe LLP, said the final rules deal a blow to real estate owners involved in a popular type of lease known as a triple net lease. The term refers to property owners who lease a building to an investor but require the investor to pay for repairs and maintenance. Those property owners aren’t eligible for the deduction, he said.
This article was provided by Bloomberg News.