Trusts, estates, and beneficiaries must abide by specific IRS rules in regard to the 199A tax deduction. You can find complete details about various situations below.

Where the trust is a grantor trust, the owner will compute its QBI with respect to the owned portion of the trust as if that QBI had been received directly by the owner.

In the case of a non-grantor trust or estate, the QBI and expenses properly allocable to the business, including the W-2 wages relevant to the computation of the wage limitation, and relevant UBIA of depreciable property must be allocated among the trust or estate and its various beneficiaries.

A beneficiary’s share of the DNI deemed to be distributed for the year is used to determine the beneficiary’s share of QBI and W-2 wages from the trust for the year. Where part of the DNI is not deemed distributed, that amount shall be used to proportionally determine the QBI and W-2 wages for the trust or estate. Where there is no DNI for the year, all QBI and W-2 wages are allocated to the trust or estate. (Reg §1.199A-6(d)(3)(ii))

To the extent the trust’s or estate’s UBIA of qualified property is relevant to a trust or estate and any beneficiary, the trust’s or estate’s UBIA of qualified property will be allocated among the trust or estate and its beneficiaries in the same proportion as DNI of the trust or estate is allocated.

Is determined at the trust level without taking into account any distribution deductions.

Trusts formed or funded with a significant purpose of receiving a deduction under Section 199A will not be respected for purposes of Section 199A.

In the case in which two or more trusts have substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries, and a principal purpose for establishing such trusts or contributing additional cash or other property to such trusts is the avoidance of Federal income tax, then such trusts will be treated as a single trust for Federal income tax purposes. (Reg §1.643(f)-1(a))