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Proposed rules issued for qualified opportunity funds

In REG-115420-18, the IRS proposed regulations providing guidance under Sec. 1400Z-2, which, along with Sec. 1400Z-1, was added to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97. Together, the sections authorize new qualified opportunity zones (QOZs) and qualified opportunity funds (QOFs), both of which are intended to encourage economic growth and investment in designated distressed communities by providing federal income tax benefits to taxpayers who invest in businesses located within the zones.

Sec. 1400Z-2 allows for the deferral of inclusion in gross income for certain gains to the extent that corresponding amounts are reinvested in a QOF. It also excludes from gross income all or a portion of the post-acquisition gains on investments in QOFs that are held for certain prescribed periods.

The proposed regulations describe and clarify certain taxpayer investment requirements and provide rules by which corporations and partnerships may qualify and self-certify as QOFs. At the same time, the IRS issued Rev. Rul. 2018-29, which addresses the application to real property of the requirement in Sec. 1400Z-2 that either (1) the original use of tangible property used in a trade or business of a QOF in a QOZ must commence with the QOF, or (2) the QOF substantially improves the property.

IRS announces 2019 retirement plan limits

The 2019 limit on elective deferral contributions to 401(k) plans, 403(b) plans, and most 457 plans is $19,000, up from $18,500 in 2018. The catch-up contribution limit for those 50 and older remains $6,000 (Notice 2018-83). The maximum deductible individual retirement arrangement (IRA) contribution for 2019 increased $500 to $6,000. The ability of taxpayers who are covered by workplace retirement plans to make a deductible IRA contribution is phased out for singles and heads of household who have adjusted gross incomes between $64,000 and $74,000, a slight increase from last year. For taxpayers making contributions to Roth IRAs, the phaseout range for determining the maximum contribution is $193,000 to $203,000 for married couples filing jointly and $122,000 to $137,000 for singles and heads of household. These limits were all increased from 2018.

OASDI wage base increases

The Social Security Administration (SSA) announced that the maximum amount of wages subject to the old age, survivors, and disability insurance (OASDI) tax is $132,900 for 2019. The OASDI tax rate is 6.2%, so an employee with wages up to or above the maximum in 2019 would pay $8,239.80 in tax and the employer would pay an equal amount. Self-employed individuals pay tax at a 12.4% rate up to the limit. The 2018 wage base was $128,400, for a $7,960.80 maximum amount of OASDI tax. There is no wage limit for the Medicare hospital insurance tax of 1.45% each for employees and employers, or 2.9% for the self-employed.


Get your clients ready for tax season

These year-end tax planning strategies address recent tax law changes enacted to help taxpayers deal with the pandemic, such as tax credits for sick leave and family leave and new rules for retirement plan distributions, as well as techniques for putting your clients in the best possible tax position.


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