2020 Individual Return Form 8995 and 8995-A Changes

  • Article Type:
  • Documentation
  • Last Modified:
  • 08/18/2021

Objectives

The Tax Year 2020 Form 8995 and 8995-A instructions included several changes that require(d) updates in our software. Changes included:
  • Removal of charitable contributions from the Qualified Business Income (QBI) calculation.
  • New "QBI Loss Tracking Worksheet" intended for record keeping purposes
  • Losses disallowed due to Sections 704(d), 1366(d), and 465 
  • Electronic filing updates 
  • Threshold updates

Environment

  • CCH Axcess
  • CCH ProSystem fx Tax
  • Worksheet
  • Interview
  • 1040

Details

Form 8995 and 8995-A - 2020 Software Updates Completed
  • The IRS has removed charitable contributions from the Qualified Business Income (QBI) deduction calculation. As a result, charitable contributions have been removed from the software in relation to the QBI deduction calculation, as well as removing any associated input.
  • Section 1231 losses from a passthrough entity may be overridden on Sch E, P.2 Fiduciary / Partnership / S-Corporation Passthrough > Activity > Line 80 (Fiduciary), Line 128 (Partnership), or Line 107 (S-Corporation) "Qualified business income, Section 199A" table > Input line "Section 1231 gain or loss" (Interview Form IRS K1 1041, Box 348, IRS K1 1065, Box 946, or IRS K1 1120S, Box 936). This option is available if a different result is desired than the automatic calculation.
  • Losses disallowed due to Sections 704(d), 1366(d), and 465 have been revised to ensure an accurate disallowance for QBI purposes in the same manner as federal taxable income. This provides an accurate QBI deduction and carryover calculation.
  • All 2020 threshold updates have been implemented into the software, increasing from $160,700 ($321,400 if married filing jointly) in tax year 2019 to $163,300 ($326,600 if married filing jointly) tax year 2020.
  • All 2020 Electronic Filing updates have been implemented into the software.
QBI Loss Tracking Worksheet Updates

On February 10, 2021, the IRS released tax year 2020 instructions for Forms 8995 and 8995-A, including the new "QBI Loss Tracking Worksheet".

Update: The new "QBI Loss Tracking Worksheet" will be available on release 2020.04020 
  • The worksheet will now print and detail the tracking of losses. The worksheet is not filed with the IRS, and is intended for record keeping purposes only. 
  • When QBI losses and carryovers differ from the activity, the differences will show as Non-QBI in Part II to allocate the allowed loss between Non-QBI (Part II) and QBI (Part III).
  • The changes in calculation to follow the new instructions could potentially cause changes in returns that have partially disallowed losses showing on the 8995/8995-A as well as on the carryover worksheets. 
  • When carryover overrides are used the QBI Loss Tracking worksheet will not generate.  The QBI Carryover Detail worksheet should be used instead. 
  • Ordinary losses for Schedules C, E and F will be added on a future release.
  • Column D of the worksheet will not fill at this time for passthroughs. It will be available on a future release.

Current Development - Available on a future release

The following efforts are underway according:
  • Losses disallowed due to Section 163(j) Business Interest Expense deduction will be disallowed for QBI purposes in the appropriate manner.
  • The instructions now include guidance for partially disallowed losses. Only the portion of the allowed loss or deduction attributable to QBI must be considered when determining QBI from the trade or business in the year the loss or deduction is incurred. Development is currently underway for calculating the appropriate deductions attributable to QBI based on this guidance.
  • Losses and carryovers disallowed due to Section 469 are being updated to reflect an accurate calculation for complex scenarios.

Current Limitations
  • Losses from multiple QBI activities related to a single Schedule K-1 creates calculation limitations. The IRS has not provided guidance on this matter, nor has a reasonable approach been proposed.
  • Section 1231 gains recaptured as ordinary gains do not affect QBI. The software currently does not link a Section 1231 gain recaptured as an ordinary gain to the underlaying activity so it may be considered for QBI purposes.

Additional Information

N/A

  Solution Tools
  Attachments
 Solution Id 000121259/2020-1040-Individual-Return-Form-8995-and-8995-A-Changes
 Direct Link
To provide feedback on this solution, please login.

Your feedback about this article will help us make it better. Thank you!