Domestic Production Activities Deduction Sec. 199 Deduction Domestic Production Activities Deduction

W L Hoover, Purdue University Basic Description Deduction is statutory percentage of lesser of, 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) 1/2/2019 W L Hoover, Purdue University

W L Hoover, Purdue University Statutory Percentage 2005 & 2006 – 3% 2007, 2008 & 2009 – 6% 2010 and thereafter – 9% 1/2/2019 W L Hoover, Purdue University

W L Hoover, Purdue University Sale of Cut Products Primary beneficiaries of DPAD are producers of products derived from timber Logs Lumber Finished products Revenue of loggers 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 1/2/2019 W L Hoover, Purdue University

Gains from Disposal of Standing Timber Gains from disposals of real property don’t qualify as DPGR 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 1/2/2019 W L Hoover, Purdue University

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 1/2/2019 W L Hoover, Purdue University

Recovery of Basis in Timber Depletion allowance must be treated as a cost of goods sold or other deduction in determining QPAI. 1/2/2019 W L Hoover, Purdue University