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Will this work - 199A Aggregation in ATX


BulldogTom

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So, I have been through the software, been through the threads, and I am not calling ATX support.   But I have an idea of how to do the aggregation for my client with multiple rental properties.  Tell me if you think this will work.

In the Form Schedule E,  I will create a 6th property and call it "Aggregation".  I will put $1 of income and $1 of expense to it.   Voila, it shows up on the 199A worksheet.   Select it, put in the combined income of the 5 rentals I am aggregating as well as the unadjusted basis of the combined fixed assets and I get a QBI deduction to flow through to the return.   I will then go to the blank election page on the elections form and indicate the TP is electing to aggregate the 5 properties per IRS regulations.

Anyone see a problem with doing this?   Please tell me if I am being stupid (or if ATX has a method of aggregation in the software that I have not found yet).

Thanks

Tom
Modesto, CA

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I haven't gotten into this yet.  But it sounds like a good work around within the software.

Slightly off your topic, but I assume Buildings are included in the fixed assets number?  If put into service within the last 10 years?  Am I reading the time period correctly, the later of 10 years or depreciable time period.  So a 7 year asset fully depreciated but placed in service 9 years age would be included?

More to your situation, if the multiple rentals are on an LLC 1065, Form 8825, is the election to aggregate at the entity level?  Just thinking ahead.  I'll have one of these coming in and they have no mortgage interest and are generating nice profits.

 

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4 hours ago, Randall said:

Slightly off your topic, but I assume Buildings are included in the fixed assets number?  If put into service within the last 10 years?  Am I reading the time period correctly, the later of 10 years or depreciable time period.  So a 7 year asset fully depreciated but placed in service 9 years age would be included?

More to your situation, if the multiple rentals are on an LLC 1065, Form 8825, is the election to aggregate at the entity level?  Just thinking ahead.  I'll have one of these coming in and they have no mortgage interest and are generating nice profits.

Buildings are included in the unadjusted basis number.  They are still in their depreciable life if they are less than 27.5 years old, or 39 years old as the case may be.  Assets with a depreciable life of less than 10 years can be included if they were placed in service in the last 10 years.

Passthrough entities (RPEs) can aggregate, and individuals can aggregate.  An individual may add activities to aggregation done by an RPE, but may not subtract activities from that aggregation.

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2 hours ago, Gail in Virginia said:

Am I correct that once you make the election to aggregate rentals, you are stuck with it forever?  Has anyone seen a discussion of the pros and cons of doing so? 

I think the reason to aggregate rentals is to get to the safe harbor of 250 hours.   It is hard to do 5 hours per week per rental.   But if you aggregate, you can hit the safe harbor.   

Tom
Modesto, CA

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1 hour ago, BulldogTom said:

I think the reason to aggregate rentals is to get to the safe harbor of 250 hours.   It is hard to do 5 hours per week per rental.   But if you aggregate, you can hit the safe harbor.  

The election to aggregate activities for Sec. 199A and the choice to group rental activities to meet the 250 hour safe harbor are two different things. 

The choice to group rentals under the safe harbor is one you can make and not have to disclose in the annual statement required by Notice 2019-07.  There is a consistency requirement, though, and taxpayer may not vary the chosen treatment year to year unless there has been a significant change in facts and circumstances. 

The aggregation election under the regs under Sec. 199A is for the purpose of accumulating the QBI, W-2 wages, and unadjusted basis for application to the aggregated group of activities.  This also has a consistency requirement.  There is an annual disclosure of the activities that are being aggregated.  That reporting must be consistently reported in all subsequent years.  In a subsequent year, if there is a significant change in facts and circumstances such that if the prior aggregation of trades or businesses no longer qualifies for aggregation under the rules, the activities cease being aggregated, and the taxpayer must reapply the rules to determine a new permissible aggregation, if any.

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5 minutes ago, Randall said:

Have you been studying this all year long?

Well, we got the basic structure from Congress when the law was enacted in December 2017.  There were so many open questions at the time that needed IRS guidance, it was hard to move ahead with confidence.  Mid-2018, the IRS came out with methods for computing W-2 wages for Sec. 199A.  Then we got proposed regulations in September that answered a lot of questions, but IRS was asking for comments, so it was open to change.  It was enough to do some effective year end planning for 2018.  The final regulations were released in mid-January 2019.  That's when I really started studying the various provisions.  The final regulations accepted some suggestions from practitioners, but rejected many more that were basically a wish list from practitioners.  At the same time, we got the real estate safe harbor in an IRS notice.  So, it has been on my radar screen all year, but my intense learning has been over the past month.

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