Morris Manning & Martin, LLP

Real Estate Agents and Brokers May Still Be Able To Take Advantage of the New Pass-Through Deduction

08.23.2018

The Tax Cuts and Jobs Act, enacted December 22, 2017, provided a new provision that permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business. (the “Pass-Through Deduction”). See I.R.C. § 199A. Effective for tax years beginning after December 31, 2017 and before January 1, 2026, a taxpayer, other than a corporation, is entitled to a deduction equal to 20% of the taxpayer’s qualified business income earned in a “qualified trade or business.”

In defining a “qualified trade or business” the Code provided a list of businesses that could not take advantage of the Pass-Through Deduction, and included in this list was “brokerage services.” The inclusion of “brokerage services” in the list of prohibited businesses initially could have been construed to exclude real estate brokers and agents from using the Pass-Through Deduction. 

However, proposed regulations issued by the Department of the Treasury excluded real estate agents or brokers from the definition of “brokerage services.” See REG-107892-18. Thus, real estate agents and brokers may still be able to utilize the Pass-Through Deduction, if this regulation becomes final and all of the other requirements of Section 199A are met.