Qualified property

When you tally the pros and cons, commercial property should be purchased with both eyes open, and those eyes should include those of a qualified property inspector.

Specifically, the W&C limitation of each business equals the greater of (1) 50% ofW-2 wages of the business or (2) 25% of the W-2 wages plus 2.5% of the unadjusted basis of qualified property of the business.

A trust or estate is treated as an RPE to the extent it passes through QBI, W-2 wages, unadjusted basis immediately before acquisition (UBIA) of qualified property, qualified REIT dividends, or qualified PTP income.

As part of the TCJA, Section 168(k) now allows full expensing (i.e., a 100% depreciation deduction) for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.

None of the qualified W-2 wages or qualified property of the three activities are allowed for limitation purposes.

Small businesses may elect under IRC Section 179 to expense the cost of qualified property, rather than recover such costs through depreciation deductions.

1) W-2 Wages: Compensation paid to employees of a flow-through entity, including S corporation owners (3) and nonowner employees of all flow-through entities, that must be reported to the IRS within 60 days of payment to qualify as W-2 wages for the wage and qualified property test as described below.

The maximum amount of the new tax deduction generally cannot be more than 50 percent of the total W-2 wages paid to all employees of the business (including wages paid to owners of corporations) or the sum of 25 percent of W-2 wages plus 2.5% of the cost of qualified property.

(For illustrative simplicity, there is no qualified property.)

A Qualified Business is defined in the Act as a trade of business in which substantially all of the tangible property owned and leased by the taxpayer is qualified opportunity zone business property ("Qualified Property").

Limitation based on wages and capital The portion of the deduction attributable to 20 percent of the taxpayers QBI cannot exceed the greater of (1) 50 percent of his/her share of W-2 wages paid with respect to the QBI or (2) the sum of 25 percent of his/her share of W-2 Wages plus 2.5 percent of the unadjusted basis of qualified property determined immediately after its acquisition of such qualified property.