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The Section 199A Report

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Overview – Purpose of report

The Section 199A Report is available Sage Fixed Assets - Depreciation in version 2019.1.2 and higher to provide a means to calculate the fixed assets portion of IRS Code Section 199A, Qualified Business Income (QBI).

Businesses other than C corporations such as partnerships, sole proprietors, etc. where the income ultimately “passes through” to an individual are permitted a QBI deduction up to 20% based on their net income and other factors. One of those factors in the calculation of QBI is 2.5% of the Unadjusted Basis Immediately after Acquisition (UBIA) of qualified property. Qualified property is defined in section 199A(b)(6).

This report presents three categories of assets in three sections. The first two sections highlight the assets used in calculating the 2.5% amount of qualified assets used for the QBI deduction. The third section displays the remaining assets from the report group that were not used in the calculation for 199A.

To include the third section of the report (i.e., Category III assets) check the box on the Report Definition Display assets not included in the 199A calculation.

Resolution

Notes:

  1. Before running the report, you must run depreciation on all assets through the report run date. Only assets depreciated through the run date appear on the report (this includes assets with a Depreciation Method of NO). Running depreciation as of the report date also ensures assets categorize into the correct section and that the Bus Use % is up to date for determining the correct Acquired 199A Value.
  2. See the Additional Information for more about categories, groups, and special tax situations.

In Sage Fixed Assets - Depreciation:

  1. Go to ReportsTax Reports, select Section 199A Report.
  2. Select the Group (for example <All complete Assets>).
  3. Select the Book (usually Tax). See the Tax Notes in Additional Information for more details.
  4. Choose the run Date. This will be the Fiscal Year end if doing the final report for the tax return and all assets are currently run through the Fiscal Year end.
  5. Configuration: Check the Display assets not included in the 199A calculation box to see Category III assets.


Additional information about the 199A report:

Qualified Assets on the Section 199A Report

  • Bonus and Section 179 are ignored for purposes of determining when an asset is Qualified and for determining asset categorization/report section.
  • Estimated Life (the applicable recovery period) can only be based on the GDS life table. See Tax Notes below for more details.

Qualified Assets

Though it’s more complicated than this, here is a quick list to remember which assets are included in the Section 199A calculation.

  • Tangible and depreciable
  • Used at any point during the taxable year in the trade or business to generate QBI
  • Is available for use at the taxable year end
  • The depreciable period for the asset has not ended before the close of the tax year. Depreciable period for purposes of the 199A calculation means the later of 10 years or the last full year of depreciation after the asset is placed in service. For example, an asset with Est Life >= 10 years that has less a Rem Life < 12 months would not be included in the Section 199A calculation.

Excluded Assets

These assets are not included in the 199A calculation:

  • Not held and available for use at the end of the year
  • Intangible, such as goodwill
  • Not depreciable (i.e. Depr Method = No), such as land or assets temporarily out of service
  • Depreciable assets held for investment use
  • Not used at some point during the taxable year in the production of qualified business income.
  • Would otherwise be Qualified in prior years but are now beyond their recovery period for Section 199A purposes.

The Section 199A Report’s logic will categorize most assets correctly based on their placed-in-service date and other factors. See Reasons to create a group below for unique cases.

Asset Categories and Report Sections

For each category of assets, there is corresponding report section.

Category I Assets

These are the Qualified Assets above that have been placed in service in the last ten years, regardless of estimated life. They display in the first section labeled as Assets PIS Within the Last 10 Years (Category I). After 10 years the asset is then reclassified into Category II or Category III, depending on its estimated life.

Category II Assets

These assets are the Qualified Assets above that have been placed in service ten or more years ago and whose last day of their last full year their recovery period is before the taxable year end date (i.e. the report date). They display in the second section labeled as Category II Assets.

  • Example: A 15-year GDS life property is placed in service in December 31, 2009. The taxable year end is December 31. The asset was eligible for and expensed fully under Section 179 in 2009. For tax years ending before 12/31/2019, it is included in Section I. For tax years ending 12/31/2019 to 12/31/2023, it is included in Section II. For tax years ending after 12/31/2023, it is in Section III.

Category III Assets

These assets are active assets that are Excluded Assets, as described above. They display in the third section of the report labeled as Assets Not Included in the 199A Report Calculation. This category includes assets with less than 12 months of remaining recovery life based on the Est Life, which may have been Category I or Category II assets previously.

This section is only included in the Section 199A Report if the checkbox Assets not included in the 199A calculation is selected on the right-hand side of the report definition. This section prints a Grand Total at the bottom for the 199A Acquired Value and Acquired Value columns. The Acquired Value Grand Total amount from the Section 199A Report can be reconciled with the Depreciation Expense Report Net Grand Total for the Acquired Value.

Groups and Filtering

199A Filter

The Section 199A Report filters and organizes assets as follows:

  • Includes Active Assets, Activity Code = A, D, F, J, K, L, M, or N
  • Excludes all inactive assets including transfers and disposals
  • Includes Amortizable Assets (Property Type = Z) in Category III
  • Includes Assets with Depr Meth = No in Category III, such as land and assets temporarily out of service
  • Ignores Depreciable Basis for report filtering
  • Ignores Bonus and Section 179 deductions taken (no impact on calculations or categorization)
  • Ignores future-dated assets with a PIS Date after the report run date

Groups

A standard group (e.g. Active Assets) may be used to run the report, depending on which assets are being depreciated. An existing custom group may also be used to run the report. And, if needed, a newly created group that includes the required and allowable assets may be used.
Reasons to create a Group

To exclude assets that were not used in generating trade or business income, but are listed on the Depreciation Schedule

  • Investment property
  • Assets sold, but not yet delivered (and Assets to be sold that are no longer used in the business)
  • Assets listed on Depr Schedule, but not yet in service or complete

To separate assets in a single Sage Fixed Assets company that belong to multiple legal entities.

  • For purposes of 199A, each legal entity must have a separate calculation.

The Section 199A Report ignores Sort Criteria in Group Manager to reduce report complexity. If an existing group has Sort Criteria entered, it will be suppressed.

If the selected Sort Criteria is critical (i.e. the sort organizes assets by legal entity), the better approach would be to create a new Group for each legal entity.

Create a Group as you would normally and be sure to exclude or include specific assets that are needed to meet the Section 199A Report calculation requirements that are not part of the report filtering described above.

Tax Notes

  1. The GDS life for assets must be used for the 199A Calculation. If the Tax book is set up for depreciation using the ADS life (e.g. Est Life = 10 for equipment instead of the GDS Est Life = 7), we recommend setting up a new book using the GDS life for the purposes of generating an accurate Section 199A Report.
  2. There is an anti-abuse provision in the regulations which excludes assets as described in the scenario below. If necessary, these assets need to be manually excluded from the report.

    Property is not qualified property if the property is acquired within 60 days of the end of the taxable year and disposed of within 120 days of acquisition without having been used in a trade or business for at least 45 days prior to disposition, unless the taxpayer demonstrates that the principal purpose of the acquisition and disposition was a purpose other than increasing the section 199A deduction. [Reg. 1.199A-2(c)(1)(iv)]

To read more about the QBI Deduction and 199A, see the Sage City post: Sage Fixed Assets - How to calculate the capital limitation for the new Section 199A deduction

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