Sec. 199 Deduction Domestic Production Activities Deduction W L Hoover, Purdue University
Basic Description Deduction is statutory percentage of lesser of, n n Qualified Production Activities Income (QPAI), and Taxpayer’s taxable income for year, or AGI in case of individuals, Deduction may not exceed W-2 wages paid to generate domestic production gross receipts (DPGR) 6/4/2021 W L Hoover, Purdue University 2
Statutory Percentage 2005 & 2006 – 3% 2007, 2008 & 2009 – 6% 2010 and thereafter – 9% 6/4/2021 W L Hoover, Purdue University 3
Sale of Cut Products Primary beneficiaries of DPAD are producers of products derived from timber n n n Logs Lumber Finished products Revenue of loggers n n n 6/4/2021 Qualify if take title to timber and sell logs Don’t qualify if provide logging services May be an issue if they have only a contract right to cut W L Hoover, Purdue University 4
Gains from Disposal of Standing Timber Gains from disposals of real property don’t qualify as DPGR n IRS has indicated that a state’s statutory definition of real property is not binding on IRS A disposal of timber on the stump is a disposal of real property 6/4/2021 W L Hoover, Purdue University 5
Gains from Disposal of Standing Timber An election under 631(a) can be revoked in order to qualify revenue from sale of cut products as DPGR 6/4/2021 W L Hoover, Purdue University 6
Recovery of Basis in Timber Depletion allowance must be treated as a cost of goods sold or other deduction in determining QPAI. 6/4/2021 W L Hoover, Purdue University 7