DPAD and Section 179

[Safire]

For a shareholder in S Corp, does the Section 179 deduction reduce the QPAI ? I really have looked for the answer to this, for about an hour now. Help anyone? This is all I need to finish up an S Corp return.

[Safire]

Is this a stupid question or something?

I am just going to subtract the Section 179 from the income to be on the safe side, I would rather him get $1100 but I cannot find the answer to this anywhere and if I spend any more time on it, he will owe me more than he saves in added fees.

[veritas]

What is QPAI?

[Safire]

qualified production activities income

Oh and the answer is yes, you would deduct the Section 179. I kinda figured that but wanted be sure as it would make a $600 difference in his DPAD.

[Unregistered]

Safire, I didn't respond to your question because I was researching the same thing. Can you tell me where you found the answer? I can't find anything.

[Safire]

Someone posted this at another board in response to this question over there.


(Quoted Answer)
Here's what Prop. Reg. 1.199-5(b) says:
(b) S corporations.

(1) Determination at shareholder level. The section 199 deduction is determined at the shareholder level. As a result, each shareholder must compute its deduction separately. For purposes of this section, each shareholder is allocated, in accordance with section 1366, its pro rata share of S corporation items (including items of income, gain, loss, and deduction), CGS allocated to such items of income, and gross receipts included in such items of income, even if the shareholder's share of CGS and other deductions and losses exceeds DPGR. To determine its section 199 deduction for the taxable year, the shareholder generally aggregates its pro rata share of such items, to the extent they are not otherwise disallowed by the Internal Revenue Code, with those items it incurs outside the S corporation (whether directly or indirectly) for purposes of allocating and apportioning deductions to DPGR and computing its QPAI. However, if an S corporation uses the small business simplified overall method described in §1.199-4(f), then each shareholder is allocated its share of QPAI and W-2 wages, which (subject to the limitation under section 199(d)(1)(B)) are combined with the shareholder's QPAI and W-2 wages from other sources. Under this method, a shareholder's share of QPAI from an S corporation may be less than zero.

END OF REG. QUOTE

The Section 179 deduction is one of the items allocated to shareholders by the S corporation, so this tells me it is a deduction in computing QPAI.
(End quoted answer)


I had read some of this in a few places but I guess I was looking to see Section 179 mentioned specifically. I don't think it is mentioned specfically anywhere, but the poster "emcee" is right. Section 179 is separately stated to shareholders, so it makes sense that it would be a "deduction" against QPAI.

[Unregistered]

OK, thanks. I will adjust also.