After the rush of the individual tax season and plenty of work left to be done; now is the time to start switching gears towards thinking about 2018 fiscal year ends, pass-through entities and some of the big changes that go along with them. Three important topics are: The Iowa Section 179 deduction limitation, Domestic Production Activity Deduction, and Qualified Business Income Deduction.
SO WHAT CHANGED?
Iowa Section 179 deduction limitation increased to $70,000 for 2018 for all taxpayers according to Senate File 220. Looking ahead, this limitation increases to $100,000 for 2019. This is a big change from the limit in prior years which was $25,000.
Domestic Production Activity Deduction for fiscal years beginning after December 31, 2018 will no longer be allowed a deduction on the Federal or Iowa return.
Qualified Business Income Deduction will not actually change for fiscal years beginning after January 1, 2018. Going forward, this deduction will still be allowed on the federal return. As for Iowa, this deduction will not be adopted until fiscal year 2019. The QBI rules for farmers who are subject to special cooperative rules and limitations are similar to the old DPAD deduction but is now considered a deduction under Section 199A(g).
HOW DOES THIS AFFECT ME?
The new rule for Iowa Section 179 deduction limitation affects all taxpayers. Entities that filed a 2018 return based on the previous $25,000 limitation must file an amended return unless the Iowa 179 deduction would be fully phased out even under the $70,000 limitations, or the entity’s total allowable Section 179 deduction under the old limits was $25,000 or less and was not partially phased out.
DPAD will no longer be a deduction after December 31, 2018. Entities will continue to receive the recent QBI deduction when they meet the qualifications under the Section 199A and Section 199A(g) which is similar to the DPAD deduction for farmers who are subject to special cooperative rules and limitations. Iowa will still allow DPAD under the old rules for the fiscal year 2018 return and adopt QBI beginning in 2019. QBI rules have not changed for 2018 fiscal year ends but guidance is still evolving, so it’s a good idea to monitor the details, or work with a pro who does.