Total Stock Market Index - Section 199A dividends this year

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FactualFran
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Re: Total Stock Market Index - Section 199A dividends this year

Post by FactualFran »

Grogs wrote: Fri Jan 24, 2020 4:08 pm I didn't say it affected the actual percentage of qualified dividends. What I said was that in the past, greater than 95% qualified dividends was reported as 100%. Now that's not happening, at least according to this earlier post below.
A few years ago the Form 1099 for some mutual funds that I invest in had 97% qualified dividend income (QDI). Those were not reported as 100%. Reporting between 95% and 100% QDI is not something new.

As far as I know, the Tax Cuts and Jobs Act of 2017 that added section 199A to the tax law did not change that. Part of that section defined Qualified REIT Dividend as any dividend from a REIT that was not a capital gain dividend or qualified dividend income. The income tax treatment of what is now Qualified REIT dividend went from being taxed as ordinary income to having 80% of it taxed as ordinary income. The tax treatment had not been as long-term capital gain.
cas
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Re: Total Stock Market Index - Section 199A dividends this year

Post by cas »

FactualFran wrote: Fri Jan 24, 2020 5:53 pm
Grogs wrote: Fri Jan 24, 2020 4:08 pm I didn't say it affected the actual percentage of qualified dividends. What I said was that in the past, greater than 95% qualified dividends was reported as 100%. Now that's not happening, at least according to this earlier post below.
A few years ago the Form 1099 for some mutual funds that I invest in had 97% qualified dividend income (QDI). Those were not reported as 100%. Reporting between 95% and 100% QDI is not something new.
I don't have a dog in this fight, but if you enjoy inspecting primary sources, the Boglehead's wiki for Qualified Dividend - citing 26 US Code 854 (as a primary source) does say
The fraction of dividend distributions from a mutual fund or ETF which are qualified is the same fraction as the qualified dividends are of the income the fund received. However, if at least 95% of the fund's income was from qualified dividends, it can report the dividend as 100% qualified.
To non-lawyer me, 26 US Code 854 does appear to support the wiki's statement, but I'll leave it to you guys to decide that yourselves.

I suspect that the key is the word "can" ("*can* report the dividend as 100% qualified") and that both sides in this little spat are correct as to what they have seen their own individual mutual funds do with that word "can" in past years.
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House Blend
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Re: Total Stock Market Index - Section 199A dividends this year

Post by House Blend »

FactualFran wrote: Fri Jan 24, 2020 5:53 pm
Grogs wrote: Fri Jan 24, 2020 4:08 pm I didn't say it affected the actual percentage of qualified dividends. What I said was that in the past, greater than 95% qualified dividends was reported as 100%. Now that's not happening, at least according to this earlier post below.
A few years ago the Form 1099 for some mutual funds that I invest in had 97% qualified dividend income (QDI). Those were not reported as 100%. Reporting between 95% and 100% QDI is not something new.
As cas said, fund providers have had the option, at least in past years, to round up any QDI amounts above 95% to 100%.

In any case, I've been tracking VLCAX (Large Cap Index) for 11 years, and this year is the first time it has reported less than 100% QDI. This is not the first year that it has owned shares of REITs.

The IRS has made it pretty clear that a fund cannot treat any dividend as both QDI and QBI, so that would seem to eliminate rounding up to 100% *and* reporting nonzero amounts of Sec 199A income.

What's unclear to me is whether Vanguard had the option to round up the 97.15% of QDI in 2019 to 100% while reporting $0 Sec 199A income. That would have been a tiny bit better outcome for shareholders of VLCAX (but not for VTSAX, with 93.79% QDI in 2019).
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House Blend
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Re: Total Stock Market Index - Section 199A dividends this year

Post by House Blend »

retiringwhen wrote: Fri Jan 24, 2020 8:52 am
House Blend wrote: Tue Jan 21, 2020 4:15 pm For tax geeks who own Vanguard funds in a brokerage account and haven't seen their 1099's yet, you can reverse engineer your numbers by downloading this spreadsheet:
https://advisors.vanguard.com/VGApp/iip ... e=iciFiles

This reports all of the 2019 distribution details for all Vanguard funds, including the breakdown of qualified vs. non-qualified dividends, foreign taxes paid, and (ugh) Section 199A income.
House Blend or anyone, do you know where the ICI file is stored for years before 2019? I think I have a pretty slick way to automate an analysis of tax-efficiency over time using that dataset (reasonably well formatted for spreadsheet manipulation.)
I just checked that replacing "2019" with "2018" in the URL for the spreadsheet seems to work...
retiringwhen
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Re: Total Stock Market Index - Section 199A dividends this year

Post by retiringwhen »

House Blend wrote: Sat Jan 25, 2020 12:29 pm I just checked that replacing "2019" with "2018" in the URL for the spreadsheet seems to work...
:sharebeer
FactualFran
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Re: Total Stock Market Index - Section 199A dividends this year

Post by FactualFran »

cas wrote: Fri Jan 24, 2020 7:23 pm
FactualFran wrote: Fri Jan 24, 2020 5:53 pm
Grogs wrote: Fri Jan 24, 2020 4:08 pm I didn't say it affected the actual percentage of qualified dividends. What I said was that in the past, greater than 95% qualified dividends was reported as 100%. Now that's not happening, at least according to this earlier post below.
A few years ago the Form 1099 for some mutual funds that I invest in had 97% qualified dividend income (QDI). Those were not reported as 100%. Reporting between 95% and 100% QDI is not something new.
I don't have a dog in this fight, but if you enjoy inspecting primary sources, the Boglehead's wiki for Qualified Dividend - citing 26 US Code 854 (as a primary source) does say
The fraction of dividend distributions from a mutual fund or ETF which are qualified is the same fraction as the qualified dividends are of the income the fund received. However, if at least 95% of the fund's income was from qualified dividends, it can report the dividend as 100% qualified.
To non-lawyer me, 26 US Code 854 does appear to support the wiki's statement, but I'll leave it to you guys to decide that yourselves.

I suspect that the key is the word "can" ("*can* report the dividend as 100% qualified") and that both sides in this little spat are correct as to what they have seen their own individual mutual funds do with that word "can" in past years.
Exactly what in the primary source (the U.S. Code) states "*can* report the dividend as 100% qualified"?

According to the primary source if "the qualified dividend income of such investment company for such taxable year is less than 95 percent of its gross income, then, in computing qualified dividend income, there shall be taken into account only that portion of such dividend reported by the regulated investment company as qualified dividend income in written statements furnished to its shareholders." Taking that as an implication of what "can" be done when the QDI is at least 95 percent seems to be a stretch.

Here is a part of a 2014 1099-Div that I received with a QDI of 97.3%.

Image

As I wrote: "Reporting between 95% and 100% QDI is not something new." It does not seem that reporting between 95 and 100 percent is fsomething due to the Tax Cuts and Jobs Act of 2017 change it.
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Electron
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Electron »

My 1099-DIV form shows Section 199A dividends from Total Stock Market, Mid-Cap Index, and Small-Cap Index. The Section 199A percentages relative to total ordinary dividends are 5.85% for VTSAX, 11.13% for VIMAX, and 23.94% for VSMAX. I was a little surprised at the percentages in the second two funds.

The percentages do match data in the Vanguard spreadsheet that was referenced earlier. I do not own the REIT Index fund but was surprised to see no Section 199A dividends listed for VGSIX or VGSLX.

This thread has been a great help in understanding how to fill out the 2019 tax forms. Thanks to all. If my understanding is correct, the limitation calculated on Form 8995 tends to affect those with lower incomes rather than higher incomes.
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Duckie
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Duckie »

I just got my 1099-DIV from Vanguard. When I use TurboTax and add the information from Box 5, TT creates Form 8995 and fills in numbers starting at line 5 for the qualified REIT dividends. Since I do not have any type of business can I still use this form? The instructions are a little vague. I generally trust TT but still...
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scorcher31
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Section 199 A Dividends on VTSAX this year? Turbotax question

Post by scorcher31 »

[merged this post and its replies into the existing thread - moderator prudent]

Hey guys,

So I just started inputting my taxes for my 1099-div for Vanguard into turbo tax this year and noticed my 1099 has Section 199A dividends for VTSAX this year. It did not seem to have these last year. I tried to look up what these are but I'm lost (something about may be eligible for the 20% qualified business income deduction). I'm just a W2 employee, dont have any actual business myself. When I plug it into turbo tax though it seems to decrease my taxes slightly.

Here are my questions:

1. Why is it just showing this year on my 1099 and not last year?

2. Is this something I can take (when I plug it in turbo tax seems to adjust my numbers automatically) I assume it wouldn't if I wasn't eligible

3. By entering this value into my 1099 it seems to effect row 10 on my 1040 tax return. When I read row 10 on my 1040 form in turbo tax it mentions I should be attaching form 8995, but turbo tax doesn't appear to be generating this form in it's list of forms I see on the left. Does this mean I don't need the form? Is it a glitch? I would think if I needed a higher model to generate the form it would tell me and not just ignore it's existence.


Any help/thoughts are appreciated as always!
Last edited by scorcher31 on Sun Jan 26, 2020 10:38 pm, edited 1 time in total.
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scorcher31
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Re: Section 199 A Dividends on VTSAX this year? Turbotax question

Post by scorcher31 »

Actually that helped a ton thanks! Still stuck with one thing however. Turbotax does all the right math for me but still dosen't seem to generate a 8995 for us. Any thoughts?
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scorcher31
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Re: Total Stock Market Index - Section 199A dividends this year

Post by scorcher31 »

Duckie wrote: Sun Jan 26, 2020 8:03 pm I just got my 1099-DIV from Vanguard. When I use TurboTax and add the information from Box 5, TT creates Form 8995 and fills in numbers starting at line 5 for the qualified REIT dividends. Since I do not have any type of business can I still use this form? The instructions are a little vague. I generally trust TT but still...

So from what I can gather yes we are eligible because we own some REIT in VTSAX.

Now I have a question. When I enter everything into turbotax, my tax does go down a bit but I dont seem to see a 8995 generated. Any idea why?
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Duckie
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Duckie »

scorcher31 wrote:When I enter everything into turbotax, my tax does go down a bit but I dont seem to see a 8995 generated. Any idea why?
Are you using TurboTax online or desktop? I'm on desktop (TT Deluxe) and it created Form 8995 for me once I put the number in Box 5.
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scorcher31
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Re: Total Stock Market Index - Section 199A dividends this year

Post by scorcher31 »

Duckie wrote: Sun Jan 26, 2020 11:08 pm
scorcher31 wrote:When I enter everything into turbotax, my tax does go down a bit but I dont seem to see a 8995 generated. Any idea why?
Are you using TurboTax online or desktop? I'm on desktop (TT Deluxe) and it created Form 8995 for me once I put the number in Box 5.
I am using the desktop. For me when I try to make a 8995 it is all blank. When I try to make a 8995a it does populate the appropriate section but it says the form is not done, but it dosent appear on it's own which is weird. Why would i need a 8995a instead of the simplified one?
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scorcher31
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Re: Total Stock Market Index - Section 199A dividends this year

Post by scorcher31 »

Figured it out! if anyone is curious, if you are married filing jointly and have an income greater than $321,400 you have to use 8995a. Unfortunately turbo tax doesn't have 8995a finished yet because the government hasn't finished the instructions yet which is why nothing is pulling yet.
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scorcher31
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Re: Section 199 A Dividends on VTSAX this year? Turbotax question

Post by scorcher31 »

Figured it out! if anyone is curious, if you are married filing jointly and have an income greater than $321,400 you have to use 8995a. Unfortunately turbo tax doesn't have 8995a finished yet because the government hasn't finished the instructions yet which is why nothing is pulling yet.
Grogs
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Grogs »

Seems like TurboTax is handling this better than H&R Block. I went into my 1099-DIV, entered the massive $108 in Sec. 199A dividends, and absolutely nothing happened with the bottom line. I went to investigate, and it looks like a brain-dead error on the part of the software.

- On the form 8995, line 10 is 20% of the Sec. 199A, or $22 in my case
- Form 8995, line 14 is basically 20% of my taxable income, excluding qualified dividends.
- Form 8995, line 15 then says: "Enter the smaller of line 10 or line 14". That should be the $22 from line 10, but the software put $0 instead.
- When I overrode line 15 and put in the correct value ($22), nothing happened because it didn't update the 1040, line 10.
- Finally, I overrode the $0 on 1040, line 10, with $22 and my return increased by $12.

The $12 had me scratching my head for a minute since $22*24% = $5.28, but then I remembered the tax tables. The $22 was enough to drop me to the next lower $50 increment, so I got $50*24%=$12 instead. With such a small amount of 199A income, it could easily have gone the other way and then I would have seen no change at all.

Unfortunately, one can't efile using override values. I'll either have to wait until the form gets fixed, or just ignore the whole thing. For people with much larger Sec. 199A dividends, it may be worth the hassle of engaging with HRB to try and get it fixed. :annoyed
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Re: Total Stock Market Index - Section 199A dividends this year

Post by prd1982 »

Grogs wrote: Mon Jan 27, 2020 7:36 am Seems like TurboTax is handling this better than H&R Block.
By any chance is your AGI > 160,700 as single or 321,400 if married? In that case you need to use for 8995a, which H&R Block says will not be final until 2/14. Others have said that the IRS hasn't finalized the 8995a form yet, so 2/14 should be considered tentative. The date already slipped from 1/24.
Random Poster
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

scorcher31 wrote: Sun Jan 26, 2020 11:18 pm I am using the desktop. For me when I try to make a 8995 it is all blank. When I try to make a 8995a it does populate the appropriate section but it says the form is not done, but it dosent appear on it's own which is weird. Why would i need a 8995a instead of the simplified one?
For clarity, and given that you apparently need to use Form 8995-A, is only Part IV of the form being populated (such that Parts I, II, and III are either left blank or filled in with zeros)?

And none of the schedules to Form 8995-A are being completed?

And is the first entry on Form 8995-A on Line 28?
prd1982 wrote: Mon Jan 27, 2020 8:47 am By any chance is your AGI > 160,700 as single or 321,400 if married? In that case you need to use for 8995a, which H&R Block says will not be final until 2/14. Others have said that the IRS hasn't finalized the 8995a form yet, so 2/14 should be considered tentative. The date already slipped from 1/24.
I don't think that is accurate.

Form 8995-A and its accompanying schedules are already finalized and available on the IRS website.

The instructions to Form 8995-A and its accompanying schedules, however, do not appear to be finalized and available on the IRS website.
Grogs
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Grogs »

prd1982 wrote: Mon Jan 27, 2020 8:47 am
Grogs wrote: Mon Jan 27, 2020 7:36 am Seems like TurboTax is handling this better than H&R Block.

By any chance is your AGI > 160,700 as single or 321,400 if married?
In that case you need to use for 8995a, which H&R Block says will not be final until 2/14. Others have said that the IRS hasn't finalized the 8995a form yet, so 2/14 should be considered tentative. The date already slipped from 1/24.
No, but it's a problem I'd love to have. :sharebeer
clip651
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Re: Total Stock Market Index - Section 199A dividends this year

Post by clip651 »

Anyone using TaxAct this year willing to share your experience with how TaxAct handled this?

thanks,
cj
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Re: Total Stock Market Index - Section 199A dividends this year

Post by ishkadetto »

Reporting in that Express1040.com handled the 199A reporting with no difficulty or confusion and automatically did the 8995 Form.
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scorcher31
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Re: Total Stock Market Index - Section 199A dividends this year

Post by scorcher31 »

Random Poster wrote: Mon Jan 27, 2020 9:26 am
scorcher31 wrote: Sun Jan 26, 2020 11:18 pm I am using the desktop. For me when I try to make a 8995 it is all blank. When I try to make a 8995a it does populate the appropriate section but it says the form is not done, but it dosent appear on it's own which is weird. Why would i need a 8995a instead of the simplified one?
For clarity, and given that you apparently need to use Form 8995-A, is only Part IV of the form being populated (such that Parts I, II, and III are either left blank or filled in with zeros)?

And none of the schedules to Form 8995-A are being completed?

And is the first entry on Form 8995-A on Line 28?
prd1982 wrote: Mon Jan 27, 2020 8:47 am By any chance is your AGI > 160,700 as single or 321,400 if married? In that case you need to use for 8995a, which H&R Block says will not be final until 2/14. Others have said that the IRS hasn't finalized the 8995a form yet, so 2/14 should be considered tentative. The date already slipped from 1/24.
I don't think that is accurate.

Form 8995-A and its accompanying schedules are already finalized and available on the IRS website.

The instructions to Form 8995-A and its accompanying schedules, however, do not appear to be finalized and available on the IRS website.
Yes I definitely need to use form 8995A due to income limits. So when i go to forms in turbo tax, I have to open a 8995A otherwise I don't see one. It is already autofilled out and effecting my 1040, but dosent seem to appear unless 1 open it up. I'm guessing because the form in turbotax has not been finalized.

For clarity only Part 4 is filled out starting on Line 28. All other parts and schedules are left blank.

As you said on the IRS website 8995A has recently been finalized but not the instructions which are still draft. Based on the regular 8995 my impression is turbotax will not finalize their 8995A in system until the IRS instructions themselves are finalized.
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Re: Total Stock Market Index - Section 199A dividends this year

Post by runner26 »

Grogs wrote: Mon Jan 27, 2020 10:29 am
prd1982 wrote: Mon Jan 27, 2020 8:47 am
Grogs wrote: Mon Jan 27, 2020 7:36 am Seems like TurboTax is handling this better than H&R Block.

By any chance is your AGI > 160,700 as single or 321,400 if married?
In that case you need to use for 8995a, which H&R Block says will not be final until 2/14. Others have said that the IRS hasn't finalized the 8995a form yet, so 2/14 should be considered tentative. The date already slipped from 1/24.
No, but it's a problem I'd love to have. :sharebeer
I have the same problem as grogs with block, my $85 is not appearing on line 10, or on the 8995 line which says enter the smaller which should be 85, but shows 0. Hope someone reports to block.
Update, block says 8995 is final as of 1/24 for windows. Final with an error!
kaneohe
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Re: Section 199 A Dividends on VTSAX this year? Turbotax question

Post by kaneohe »

Thanks to scorcher for starting this thread. Alerted me to be looking at other boxes on the 1099-DIV. Perfect timing since the VG 1099-DIV came today. Had to go back to last yrs to make sure I didn't miss anything.......no Box 5 entry last yr.

Hopefully software knows what it's doing...........if so it looks like it can be handled manually in simple cases with 10 entries on Pt IV of 8995A without too much deep thinking. If the Box 5 entry is 1000, looks like there will be 1000 entries, and 4 200 entries (20% of 1000). The other 4 entries are some other calculation that is a limit on the 200 but don't seem to be a limit in my case. The 200 (20% QBI deduction) is then transferred to line 10 of the 1040 where it adds to the deduction as advertised. The general case can be much more complex but just having REIT dividends in Box 5 perhaps is simple for most cases.
Random Poster
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

scorcher31 wrote: Mon Jan 27, 2020 6:07 pm Yes I definitely need to use form 8995A due to income limits. So when i go to forms in turbo tax, I have to open a 8995A otherwise I don't see one. It is already autofilled out and effecting my 1040, but dosent seem to appear unless 1 open it up. I'm guessing because the form in turbotax has not been finalized.

For clarity only Part 4 is filled out starting on Line 28. All other parts and schedules are left blank.

As you said on the IRS website 8995A has recently been finalized but not the instructions which are still draft. Based on the regular 8995 my impression is turbotax will not finalize their 8995A in system until the IRS instructions themselves are finalized.
Thank you. That is helpful (and confirming for my situation).
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Alan S. »

Anyone know the extent of Sec 199A dividends reported by other broad index funds or ETFs of other large brokers such as Schwab or Fido?
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Oicuryy »

Alan S. wrote: Mon Jan 27, 2020 11:52 pm Anyone know the extent of Sec 199A dividends reported by other broad index funds or ETFs of other large brokers such as Schwab or Fido?
T Rowe Price is not large but they posted this list. Percentages shown are percent of ordinary dividends.
https://www.troweprice.com/personal-inv ... dends.html

My thanks to the posters in this thread for a very useful discussion.

Ron
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Electron
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Electron »

Here is an article from Michael Kitces that may answer some of our tax questions. It looks like the income limitation only applies to direct investment in real estate. Note the last paragraph in this post.

https://www.kitces.com/blog/reit-real-e ... deduction/

"Under the Tax Cuts and Jobs Act of 2017, though, REITs have been afforded a new tax preference: the IRC Section 199A deduction for “pass-through” businesses, that allows for a 20% deduction of any qualified REIT dividends against that very income, resulting in an effective 20% reduction in the tax rate on REITs (where the top 37% tax rate becomes “just” 29.6% instead)."

"Notably, the new Qualified Business Income (QBI) deduction under Section 199A is available for direct investments in real estate as well. However, direct real estate investments only qualify for the deduction if the amount of real estate investment activity amounts to a real estate “business” (where purely passive real estate investment income may not count), and is further limited for certain high-income individuals due to wage-and-depreciable-property tests that apply to married couples with taxable income above $315,000, and all other filers with taxable income about $157,500."

"By contrast, qualified REIT dividends simply obtain the 20% Section 199A deduction, implicitly counting as a real estate “business” (by virtue of a REIT’s size and scale), and without any high-income limitations on the deduction!"
Last edited by Electron on Wed Feb 12, 2020 2:12 pm, edited 1 time in total.
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Global100 »

Alan S. wrote: Mon Jan 27, 2020 11:52 pm Anyone know the extent of Sec 199A dividends reported by other broad index funds or ETFs of other large brokers such as Schwab or Fido?
Fidelity FSKAX US Total Stock Market index fund had no Section 199A dividends in 2019.
Last year FSKAX distributed Unrecaptured Section 1250 gains, but there were none this year.
All FSKAX dividends in 2019 were qualified. There were some CGs distributed in April 2019.
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

retiringwhen wrote: Tue Jan 21, 2020 3:57 pm
House Blend wrote: Tue Jan 21, 2020 3:03 pm Can you post a screenscrape of how turbotax filled out Form 8995? Use fictitious numbers if you prefer.
TurboTax takes the value from the 1099-DIV box 5 and puts them in line 6 of form 8995, and then does the calculations on lines 8 and 9. It then pulls in data from other places to fill in rows 11-12 and calculates 13-14 and fills in the rest.

Line 11 comes from 1040 line 8b - line 9
Line 12 comes from 1040 line 3a as far as I can tell. (this seems odd and possibly even incorrect, not sure based on the names of the entries. it could also be my example which has a net capital loss for the year)

Basically, I think the gist is that you take the sum of all the box 5 inputs into line 6 and follow the bottom half of the page. Lines 1-5 only apply if you have other QBI from actual business activities you engage directly (or via an LLC).
Question regarding Line 12 of Form 8995 (or its equivalent, Line 34 of Form 8995-A):

The draft instructions for 8995-A state:
Enter the amount from your tax return as follows:

Form 1040 or 1040-SR filers, your qualified dividends on line 3a, plus your net capital gain. If you’re not required to file Schedule D (Form 1040 or 1040-SR), your net capital gain is the amount reported on Form 1040 or 1040-SR, line 6. If you file Schedule D (Form 1040 or 1040-SR), your net capital gain is the smaller of Schedule D (Form 1040 or 1040-SR), line 15 or 16, unless line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends.
Okay, so that sorta makes sense.

Except for this probably not unusual situation:

If you have a short-term capital gain (say, $500) and no long-term capital gains, your Schedule D will have an entry on line 15 of $0 and on line 16 of $500.

Your 1040, line 6, will also have an entry of $500.

Now, the 8995-A instructions suggest that your net capital gain would be $500 (because that is what is reported on line 6 of your 1040), but the instructions explicitly state that your net capital gain is "the smaller of Schedule D (Form 1040 or 1040-SR), line 15 or 16, unless line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends."

In the hypothetical, line 15 is zero, but line 16 is $500.

Shouldn't your net capital gain be $500, even though you have no long-term capital gains (as reflected by the zero on line 15 of Schedule D)?

Or do you just put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?

It just seems to me that those who have only short-term capital gains are, potentially, receiving a benefit (or is it a detriment?) simply because they don't have any long-term capital gains too.
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Re: Total Stock Market Index - Section 199A dividends this year

Post by deltaneutral83 »

The deduction is generally available to taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. The deduction is generally equal to the lesser of 20% of the taxpayer’s QBI plus 20% of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. See “Understanding the New Sec. 199A Business Income Deduction,” The Tax Adviser, April 2018).
Can someone break this down? Example, income less than stated household limits and just for round numbers let's say your VTI/VTSAX threw off $100 in 199A dividends for 2019. The resulting benefit would be that instead of paying your marginal rate on that $100 you would pay...?
retiringwhen
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Re: Total Stock Market Index - Section 199A dividends this year

Post by retiringwhen »

deltaneutral83 wrote: Wed Jan 29, 2020 2:43 pm
The deduction is generally available to taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. The deduction is generally equal to the lesser of 20% of the taxpayer’s QBI plus 20% of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. See “Understanding the New Sec. 199A Business Income Deduction,” The Tax Adviser, April 2018).
Can someone break this down? Example, income less than stated household limits and just for round numbers let's say your VTI/VTSAX threw off $100 in 199A dividends for 2019. The resulting benefit would be that instead of paying your marginal rate on that $100 you would pay...?
In the 24% marginal tax rate the the tax on those $100 would be reduced from $24 to $24 * .8 which is equal all to $19.2, thus saving you $4.80 in taxes (20% reduction in you marginal rate).
rkhusky
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Re: Total Stock Market Index - Section 199A dividends this year

Post by rkhusky »

Random Poster wrote: Wed Jan 29, 2020 11:56 am Or do you just put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Not sure about the adding to qualified dividends part, but you might want to consider under what conditions lines 12-14 would even come into play. It appears that in order for that to happen, then qualified REIT dividends > (taxable income - net cap gains).
Random Poster
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

rkhusky wrote: Wed Jan 29, 2020 2:49 pm
Random Poster wrote: Wed Jan 29, 2020 11:56 am Or do you just put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Not sure about the adding to qualified dividends part, but you might want to consider under what conditions lines 12-14 would even come into play. It appears that in order for that to happen, then qualified REIT dividends > (taxable income - net cap gains).
Yes, this issue may be one where the taxpayer can put the wrong numbers in the calculation, but the error is ultimately a non-issue because the end result---a deduction equal to 20% of the qualified REIT dividends shown in Box 5 of the taxpayer's 1099-DIV---would be the same regardless.

As an aside, and for the benefit of those who may have to fill out Form 8995-A, on page 6 of the draft instructions, in the first paragraph under the heading "Part I - Trade, Business, and Aggregation Information", it is stated that:
If you don't have QBI, and only have REIT, PTP and/or domestic production activities deduction (DPAD), skip Parts I through III and complete Part IV.
So there you have it, based on the draft instructions, and as suggested previously in this thread: Only Part IV of the form may need to be completed, which simplifies things greatly.
rkhusky
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Re: Total Stock Market Index - Section 199A dividends this year

Post by rkhusky »

Random Poster wrote: Wed Jan 29, 2020 3:14 pm
rkhusky wrote: Wed Jan 29, 2020 2:49 pm
Random Poster wrote: Wed Jan 29, 2020 11:56 am Or do you just put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Not sure about the adding to qualified dividends part, but you might want to consider under what conditions lines 12-14 would even come into play. It appears that in order for that to happen, then qualified REIT dividends > (taxable income - net cap gains).
Yes, this issue may be one where the taxpayer can put the wrong numbers in the calculation, but the error is ultimately a non-issue because the end result---a deduction equal to 20% of the qualified REIT dividends shown in Box 5 of the taxpayer's 1099-DIV---would be the same regardless.
I actually missed the part about adding in qualified dividends when first reading the instructions for line 12.

Taking the minimum of lines 15 and 16 effectively gives you the long term cap gains. You are taking max(min(LT,ST+LT),0), which gives you long term cap gains if they are positive and zero otherwise. You add these to the qualified dividends, which makes sense since they are taxed the same. This is then subtracted from taxable income, which essentially leaves non-qualified dividends, short term gains, and other income on line 13, which are taxed at your income tax rate.
Random Poster
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

rkhusky wrote: Wed Jan 29, 2020 5:53 pm
Random Poster wrote: Wed Jan 29, 2020 3:14 pm
rkhusky wrote: Wed Jan 29, 2020 2:49 pm
Random Poster wrote: Wed Jan 29, 2020 11:56 am Or do you just put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Not sure about the adding to qualified dividends part, but you might want to consider under what conditions lines 12-14 would even come into play. It appears that in order for that to happen, then qualified REIT dividends > (taxable income - net cap gains).
Yes, this issue may be one where the taxpayer can put the wrong numbers in the calculation, but the error is ultimately a non-issue because the end result---a deduction equal to 20% of the qualified REIT dividends shown in Box 5 of the taxpayer's 1099-DIV---would be the same regardless.
I actually missed the part about adding in qualified dividends when first reading the instructions for line 12.

Taking the minimum of lines 15 and 16 effectively gives you the long term cap gains. You are taking max(min(LT,ST+LT),0), which gives you long term cap gains if they are positive and zero otherwise. You add these to the qualified dividends, which makes sense since they are taxed the same. This is then subtracted from taxable income, which essentially leaves non-qualified dividends, short term gains, and other income on line 13, which are taxed at your income tax rate.
I think that I understand what you are saying.

Which is, for the hypothetical, you put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
rkhusky
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Re: Total Stock Market Index - Section 199A dividends this year

Post by rkhusky »

Random Poster wrote: Wed Jan 29, 2020 5:57 pm Which is, for the hypothetical, you put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Right. Qualified dividends are subtracted from your taxable income, but short term cap gains are not.
Random Poster
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Random Poster »

rkhusky wrote: Wed Jan 29, 2020 6:00 pm
Random Poster wrote: Wed Jan 29, 2020 5:57 pm Which is, for the hypothetical, you put $0 as the net capital gains in the equation because "line 15 or 16 is zero or less, in which case nothing is added to the qualified dividends"?
Right. Qualified dividends are subtracted from your taxable income, but short term cap gains are not.
Thank you. I appreciate it.
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Electron
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Electron »

I just reviewed the 2019 Vanguard Advisors spreadsheet referenced by House Blend. There is quite a long list of funds of many types with Section 199A dividends. Section 199A information for the Vanguard REIT Index funds is not provided with 1099-DIV forms for those funds generally not available until mid February.

I was also able to access the 2018 version of the spreadsheet. It looks as though only the Vanguard REIT Index funds paid Section 199A dividends in 2018.

The Vanguard REIT Index funds pay out some non-dividend income which I assume is return of capital. One interesting observation is that the Section 199A dividends as a percentage of ordinary dividends was 85.70%.

Section 199A dividends as a percentage of total distribution was 65.11%. Overall, the tax benefit of the Section 199A dividends looks attractive for those holding the fund in a taxable account.
Electron
deltaneutral83
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Re: Total Stock Market Index - Section 199A dividends this year

Post by deltaneutral83 »

retiringwhen wrote: Wed Jan 29, 2020 2:48 pm
deltaneutral83 wrote: Wed Jan 29, 2020 2:43 pm
The deduction is generally available to taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. The deduction is generally equal to the lesser of 20% of the taxpayer’s QBI plus 20% of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. See “Understanding the New Sec. 199A Business Income Deduction,” The Tax Adviser, April 2018).
Can someone break this down? Example, income less than stated household limits and just for round numbers let's say your VTI/VTSAX threw off $100 in 199A dividends for 2019. The resulting benefit would be that instead of paying your marginal rate on that $100 you would pay...?
In the 24% marginal tax rate the the tax on those $100 would be reduced from $24 to $24 * .8 which is equal all to $19.2, thus saving you $4.80 in taxes (20% reduction in you marginal rate).
Thank you. I guess unless you have well into the 7 figures of domestic holdings with taxable accounts this isn't going to amount to much but it's better than nothing.
rkhusky
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Re: Total Stock Market Index - Section 199A dividends this year

Post by rkhusky »

Electron wrote: Thu Jan 30, 2020 12:14 am Section 199A dividends as a percentage of total distribution was 65.11%. Overall, the tax benefit of the Section 199A dividends looks attractive for those holding the fund in a taxable account.
Conventional wisdom is to avoid holding REIT’s in a taxable account due to their tax inefficiency.
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Hayden
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Hayden »

I received a K-1 that includes Section 199A Dividends.
When entering the K-1 in TurboTax, I entered the amount on the Section 199A screen, in the row labelled REIT Dividends.
I looked at the Form 8995-A, and the amount does not appear.

Any ideas why the amount is not transferring from the K-1 entry screen to the Form 8995-A?
kaneohe
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Re: Total Stock Market Index - Section 199A dividends this year

Post by kaneohe »

Hayden wrote: Thu Jan 30, 2020 4:32 pm I received a K-1 that includes Section 199A Dividends.
When entering the K-1 in TurboTax, I entered the amount on the Section 199A screen, in the row labelled REIT Dividends.
I looked at the Form 8995-A, and the amount does not appear.

Any ideas why the amount is not transferring from the K-1 entry screen to the Form 8995-A?
could it be on a plain 8995/ on 8995-A are you looking at Pt IV? Does TT make any entries of you input
the REIT dividends in Box 5 of 1099-DIV?
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SmileyFace
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Re: Total Stock Market Index - Section 199A dividends this year

Post by SmileyFace »

retiringwhen wrote: Tue Jan 21, 2020 12:15 pm
cas wrote: Tue Jan 21, 2020 12:11 pm I hope Turbotax has it figured out better than I do.
I just ran a test return with the 2019 Turbotax for a return that has VTSAX in it. There was no prompting or places on the data entry forms to identify the amount that could attributed to QBI. If it is there, it is hidden.
It all worked automatically for me. I entered in the 1099-DIV - TT copied Box-5 of the it over to form 8995 and calculated the QBI.
(I always flip from Step-by-step over to Forms mode to double-check everything)
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runner26
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Re: Total Stock Market Index - Section 199A dividends this year

Post by runner26 »

Grogs wrote: Mon Jan 27, 2020 7:36 am Seems like TurboTax is handling this better than H&R Block. I went into my 1099-DIV, entered the massive $108 in Sec. 199A dividends, and absolutely nothing happened with the bottom line. I went to investigate, and it looks like a brain-dead error on the part of the software.

- On the form 8995, line 10 is 20% of the Sec. 199A, or $22 in my case
- Form 8995, line 14 is basically 20% of my taxable income, excluding qualified dividends.
- Form 8995, line 15 then says: "Enter the smaller of line 10 or line 14". That should be the $22 from line 10, but the software put $0 instead.
- When I overrode line 15 and put in the correct value ($22), nothing happened because it didn't update the 1040, line 10.
- Finally, I overrode the $0 on 1040, line 10, with $22 and my return increased by $12.

The $12 had me scratching my head for a minute since $22*24% = $5.28, but then I remembered the tax tables. The $22 was enough to drop me to the next lower $50 increment, so I got $50*24%=$12 instead. With such a small amount of 199A income, it could easily have gone the other way and then I would have seen no change at all.

Unfortunately, one can't efile using override values. I'll either have to wait until the form gets fixed, or just ignore the whole thing. For people with much larger Sec. 199A dividends, it may be worth the hassle of engaging with HRB to try and get it fixed. :annoyed
I tried reporting this error with the software and form 8995 to the technical support staff via chat. After 5 minutes or so the person said she couldn't figure out how to use the form and that I would need to communicate with a tax expert on the issue. I asked her to forward the problem to a tax expert and have them respond to me by e-mail that they were going to fix their software. She said she has no way to forward reported problems.

I do not want to upgrade my service to be able to talk to tax experts about my return. :annoyed

In the past I had no problems communicating problems I found in Tax Act and with Turbo Tax. It seems impossible with H&R Block. I guess I will see if they correct the problem in the Feb 13 update. If not I will manually override and submit a printed return via mail and never use their product again.
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Re: Total Stock Market Index - Section 199A dividends this year

Post by Longtermgrowth »

Anyone find it odd that my 1099-DIV only lists VTI (Vanguard Total Stock Market) as having Section 199A Dividends, while some of my other holdings have a higher % REITs?

Example: DES (WisdomTree U.S. SmallCap Dividend Fund) with over 15% Real Estate...
SpaniardInCalifornia
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Re: Total Stock Market Index - Section 199A dividends this year

Post by SpaniardInCalifornia »

Let’s see how long it takes TurboTax to figure this out... I tried to e-file my taxes today and wasn’t able to because it said the software couldn’t handle it and it would be available in a “future release”... I guess the IRS gets to keep my money a little longer :annoyed
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oncorhynchus
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Re: Total Stock Market Index - Section 199A dividends this year

Post by oncorhynchus »

SpaniardInCalifornia wrote: Sat Feb 01, 2020 11:51 pm Let’s see how long it takes TurboTax to figure this out... I tried to e-file my taxes today and wasn’t able to because it said the software couldn’t handle it and it would be available in a “future release”... I guess the IRS gets to keep my money a little longer :annoyed
Turbo Tax figured mine out just fine on the first go. Took ME about a half an hour to figure out what was going on though.
I can't e-file yet because TT is awaiting an update for some forms.

o
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --
rkhusky
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Re: Total Stock Market Index - Section 199A dividends this year

Post by rkhusky »

Longtermgrowth wrote: Sat Feb 01, 2020 10:44 pm Anyone find it odd that my 1099-DIV only lists VTI (Vanguard Total Stock Market) as having Section 199A Dividends, while some of my other holdings have a higher % REITs?

Example: DES (WisdomTree U.S. SmallCap Dividend Fund) with over 15% Real Estate...
Note that these dividends are qualified REIT dividends. Perhaps your other funds' REIT dividends are not qualified.
UpperNwGuy
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Re: Total Stock Market Index - Section 199A dividends this year

Post by UpperNwGuy »

Longtermgrowth wrote: Sat Feb 01, 2020 10:44 pm Anyone find it odd that my 1099-DIV only lists VTI (Vanguard Total Stock Market) as having Section 199A Dividends, while some of my other holdings have a higher % REITs?

Example: DES (WisdomTree U.S. SmallCap Dividend Fund) with over 15% Real Estate...
Vanguard might be taking a stricter approach to this provision than are other brokers.
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