Take Another Look at your 2018 Partnership Return for Potential QBI Savings

By Neil A. Sonenberg  |  August 29, 2019

The recent adoption of Qualified Business Income (QBI) deductions – some call it the “equalizer rule” – has some real estate investors taking a closer look at their 2018 tax returns with regard to investments in LLC partnerships and Sub S corporations that have fiscal year-ends in 2017. Here’s an example of why:

Take a 2018 partnership LLC or Sub S entity that has an LLC Sub S or partnership as an investor in the underlying partnership entity. If that investee is a fiscal year filer that ends in a 2018 calendar year, that entity could qualify as generating QBI. The QBI number is important as it can potentially lower maximum tax brackets from 37% to 29.6%.

An example of a fiscal year filer would be one that had a tax year beginning February 1, 2017, and ended on January 2018. Such an entity would fit the prototype that would allow one to compute QBI.

The immediate problem is that their 2017 K-1’s do not allow for disclosure of such relevant and qualifying information such as total wages and Unadjusted Basis Immediately After Acquisition (UBIA). There is a solution to this problem because the information can be obtained from the investee entity, allowing for QBI to be computed – but time is of the essence.

The steps Marks Paneth is taking with our real estate clients who fit this profile include arranging a conference call with the Managing Partner of the Master Limited Partnership in which the investor has a position. The objective is to facilitate the identification of the qualifying business income from the entity’s full tax return or K-1 and to get copies of such information to enable the filer to make a timely adjustment to their 2018 return.

For more information, please contact your Marks Paneth tax advisor or Neil Sonenberg, Partner in our Real Estate Group.

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About Neil A. Sonenberg

Neil A. Sonenberg, CPA, is the Co-Partner-in-Charge of Marks Paneth’s Real Estate Group. With almost 40 years in public accounting, Mr. Sonenberg excels in a wide range of tax and accounting disciplines. His “out of the box” thinking and passion provide clients with an array of planning opportunities to maximize both tax savings and profits.  Mr. Sonenberg possesses expertise in all areas of real estate as well as wholesale and retail manufacturing and high-net-worth clients. He... READ MORE +

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