(UNITED STATES) The Section 199A deduction tied to qualified REIT dividends and qualified PTP income is now permanent, removing the prior sunset concern that individual investors had about the end of 2025. Under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, the 20% deduction for these two categories remains in place. The long-standing rule for negative combined amounts—where losses or adjustments reduce the total below zero—also continues unchanged.
If the combined amount of REIT dividends and qualified PTP income is less than zero in a given year:
– the Section 199A deduction related to those items is zero for that year, and
– the negative amount must be carried forward to offset future positive totals.
As of September 7, 2025, the carryforward rule remains fully in effect, with no new limits or time caps introduced.
Rate decision and practical impact
Lawmakers considered increasing the deduction rate. The House pushed for 23%, but the Senate version that became law kept the rate at 20% for REIT dividends and qualified PTP income. That decision keeps the effective tax rate on these dividends and partnership earnings near 29.6% for top-bracket taxpayers — a key benchmark many financial planners use.
For individual investors who hold REITs for income or own units in publicly traded partnerships, the permanence of the Section 199A deduction brings long-term clarity. It reinforces an existing tax-planning routine:
1. Track your combined totals each year.
2. Record any negative combined amount.
3. Carry it forward until it can offset positive income in a later year.
How the carryforward works — plain language
A net negative combined amount can arise for many reasons: ordinary partnership losses, expense allocations, or income adjustments that reduce current-year totals. When that happens:
– The deduction related to these two sources is zero for that year.
– The negative figure carries forward to future years and must be applied before a taxpayer can take the Section 199A deduction on later positive combined income.
Tax professionals describe this as preventing “deduction whiplash” — i.e., avoiding a situation where a loss year is ignored while a gain year still gets a full deduction. Instead, the carryforward aligns the benefit with net results over time.
Example:
– Year 1: $3,000 qualified REIT dividends and a $5,000 negative PTP adjustment = -$2,000 combined → deduction = $0; carryforward = $2,000.
– Year 2: $7,000 positive combined total → apply prior $2,000 carryforward first, leaving $5,000 eligible for the 20% Section 199A deduction.
What changed (and what didn’t) under the OBBBA
While the OBBBA included other measures that may affect the REIT sector broadly, it:
– Did not change the core mechanics for individual investors claiming the Section 199A deduction on REIT dividends and qualified PTP income.
– Did raise the taxable REIT subsidiary ownership limit (from 20% to 25%) and made other sector-level adjustments, but these do not alter how individuals compute their 20% deduction or handle negative combined amounts.
The deduction applies the same way as since the Tax Cuts and Jobs Act of 2017, which created Section 199A for pass-through business income and extended similar treatment to qualified REIT dividends and qualified PTP income.
Why permanence matters for planning
According to analysis by VisaVerge.com, permanence gives households steady ground for multi-year planning, particularly for those with variable partnership income and timing of REIT payouts. The carryforward rule is central to this stability because it ties the deduction to long-term results rather than only year-by-year snapshots.
Practical implication:
– A negative combined total in 2025 due to partnership losses can be applied against positive totals in 2026 or later, restoring the chance to claim the Section 199A deduction when income rebounds.
Does the carryforward ever expire?
Current guidance under Section 199A treats negative combined amounts as continuing until used — carried forward to offset future positive combined totals of qualified REIT dividends and qualified PTP income. There is no expiration under existing rules, which helps taxpayers who hold cyclical or energy-related PTPs or who reinvest in REITs during downturns.
Calculation steps — clear and repeatable
Each year:
1. Total qualified REIT dividends and qualified PTP income to get the combined amount for Section 199A purposes.
2. If positive: you may claim up to 20% of that combined amount (subject to other limitations).
3. If negative: the Section 199A deduction related to these items is zero, and the negative number is carried forward.
4. The next year: combine prior carryforward with that year’s totals to determine any deductible amount.
5. Repeat until the negative balance is fully used.
Recordkeeping and reporting
The IRS expects taxpayers to keep detailed records and report figures consistently using:
– Form 8995 (simplified) — Form 8995
– Form 8995-A (complex situations) — Form 8995-A
The official IRS Qualified Business Income Deduction page explains the rules and links to forms and instructions:
– Qualified Business Income Deduction (IRS)
Both forms and their instructions describe how to handle a negative combined amount and carry it forward.
Practical recordkeeping tips
Advisors recommend:
– Keep a running worksheet each year listing qualified REIT dividends and qualified PTP income side by side, then total them into the combined amount.
– If negative, note it clearly as a carryforward and store documentation with your return.
– Use the same format year after year to show how the carryforward applied.
– Update worksheets and amend returns if amended K-1s arrive that change amounts.
– Ensure tax software populates carryforward fields on Form 8995 or Form 8995-A per IRS instructions.
– Keep broker 1099s, Schedule K-1s for PTPs, and all supporting worksheets.
Why professionals care
Professional groups noted the OBBBA’s choice to keep the 20% rate. While a higher rate might have increased tax savings, maintaining 20% prioritized continuity and reduced risk of unintended side effects. The permanence helps:
– Households plan without a looming expiration,
– Employers offering financial wellness guidance give consistent advice,
– Industry groups reassure investors about steady tax treatment.
The OBBBA also expanded Section 199A scope to include qualified business development company (BDC) interest dividends with a 23% deduction. Important distinction:
– That 23% addition does not change the REIT/PTP combined amount rules.
– Treat the REIT/PTP combined total separately and apply the carryforward rule exactly as before.
Common filing pitfalls and safeguards
- A missing prior-year carryforward can cost you money if you later have positive combined REIT/PTP income but fail to apply the prior negative amount first.
- Conversely, claiming the deduction without reducing for a carryforward can trigger an IRS notice.
- Alert your preparer if you change firms or move states so carryforwards aren’t lost.
- Attach a simple schedule to returns showing the carryforward’s origin year and remaining balance.
“The carryforward rule protects taxpayers from losing the economic value of a deduction due to short-term swings; it aligns tax benefits with true net results over time.”
Who benefits most
- Retirees relying on REIT dividends to supplement income.
- Investors in REIT-heavy index funds in taxable accounts.
- Holders of volatile publicly traded partnerships (e.g., energy PTPs).
- Households rebalancing taxable brokerage accounts without the pressure of a sunset.
Final reminders
- The Section 199A deduction for REIT dividends and qualified PTP income remains 20% and permanent.
- The carryforward rule for negative combined amounts is unchanged — negative amounts are carried forward until fully used.
- Keep organized records, follow Form 8995 / Form 8995-A instructions, and apply carryforwards before claiming current-year deductions.
For the official IRS guidance and forms, see:
– Qualified Business Income Deduction (IRS)
– Form 8995
– Form 8995-A
With the law now permanent for these categories and the carryforward rule unchanged, the practical path is steady: keep records, run the numbers each year, and apply the 20% Section 199A deduction only after any carryforward has been absorbed.
This Article in a Nutshell
The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, permanently preserves the 20% Section 199A deduction for qualified REIT dividends and qualified PTP income. The existing rule remains: if the combined REIT/PTP amount is negative in a year, the deduction for those items is zero and the negative amount must be carried forward without expiration or new caps. Although the House proposed a 23% rate, the final law kept the 20% rate, maintaining an effective top-bracket tax rate near 29.6% for these distributions. The OBBBA also raised the taxable REIT subsidiary ownership threshold to 25% and added a 23% deduction for qualified BDC interest dividends, but these sector-level changes do not affect how individuals compute the REIT/PTP 20% deduction or the carryforward mechanics. Taxpayers should continue annual tracking, retain detailed records and use Form 8995 or 8995-A to report carryforwards and claim deductions appropriately. The permanence offers stability for long-term tax planning for retirees and investors in REITs or volatile PTPs.
