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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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