Jan. 22, 2019
Subchapter S bank shareholders will have significantly expanded access to the 20 percent tax deduction for pass-through businesses under a Treasury Department final rule that includes ICBA-advocated reforms.
The final rule expands the availability of the Tax Cuts and Jobs Act’s deduction on qualified business income to include income from the origination and sale of mortgage loans. Advocated in community banker grassroots letters and ICBA meetings with Treasury officials, this is a significant change that will benefit hundreds of community banks.
While ICBA continues reviewing the final rule, it does not appear to rectify other banking activities ineligible for the deduction, such as wealth management and retirement planning. It remains unclear how the disqualification of “investing and investment management services” would apply to trust or fiduciary services offered by a bank. Further, de minimis thresholds to qualify for the full deduction were unchanged despite ICBA calls to raise the thresholds to a flat 25 percent.
ICBA is preparing an analysis of the final rule and will continue working with policymakers to maximize Sub S community bank eligibility for the tax deduction.