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Tax News Update

irsIRS Provides Guidance On 20% Pass-Through Deduction

August 9
By: Tony Nitti for Forbes

The Tax Cuts and Jobs Act -- signed into law on December 22, 2017 — gave birth to a brand new provision: Section 199A, which permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business. While the provision has the potential to bestow a tremendous benefit upon owners of these pass-through businesses, since its enactment, no one has been able to, well... figure out how the whole thing works. Quite truthfully, the statutory language of Section 199A created more questions than answers, with those queries ranging from the seemingly simple -- what do we do about a fiscal year business that crosses over January 1, 2018? -- to the much more complex -- what exactly is a "specified service business" for which a deduction is generally prohibited?

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Sale of Improved Land: Capital or Ordinary Gain?

October 1
By: Brenda M. Graat, CPA, MBA, Milwaukee

When real property is subdivided into lots and actively sold, the common result is that the gain on sale of the property is subject to ordinary income tax treatment. However, this may not always be the case under Sec. 1237. In certain situations, a taxpayer still may be able to claim capital gain treatment under the five- or 10-year rule, even if the taxpayer subdivides the real property into lots and actively tries to sell the parcels. Five-year rule To take advantage of this exception, the taxpayer must meet the following conditions (Sec. 1237(a)): • No portion of the tract has ever been held for sale in the ordinary course of the taxpayer's business; • No other real estate was held for sale to customers in the year of sale; • No substantial improvements have been made on the tract that materially increased the value of the lot sold; and • The property must have been owned by the taxpayer for five years, unless the taxpayer inherited it.

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