In 2017, the Tax Cuts and Jobs Act was passed allowing business owners of limited liability companies, sole proprietors, partnerships and other pass-through structures to deduct 20% of certain pass-through income under code Section 199A, effectively reducing their marginal individual tax rate by a fifth of their income. However, since then, this rule left lingering questions regarding whether income from a regulated investment company qualified for the deduction.
Shareholders of regulated investment companies can generally treat their dividends as income or gains they would have realized directly, qualifying them for the 20% pass-through deduction. However, the write-off must be reduced by losses or deductions that are partially disallowed in the same tax year, as well as leverage the conduit treatment of certain real estate investment trust dividends earned by regulated investment companies.
This deduction is applicable for taxable years beginning after Aug. 24, 2020. However, taxpayers can choose to amend their 2019 and 2018 tax returns to take advantage of this 20% deduction. If you receive dividends from a regulated investment company, contact Doeren Mayhew’s tax advisors to help you take advantage of this tax savings opportunity.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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