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Qualified Business Income Deduction

INTRODUCTION

The 2017 tax reform act, commonly known as the Tax Cut and Jobs Act or TCJA, PUB.
L. No. 115-97, is the largest tax bill enacted since 1986. The TCJA reduced the

corporate tax rate from 35 percent to 21 percent. The TCJA also included new section
199A, which provides taxpayers other than C corporations with a new deduction for

income earned from other business types, including sole proprietorships, partnerships
and S corporations. This deduction, known as the section 199A deduction or the QBI

deduction is the focus of this issue guide.

For tax years beginning after 2017 and ending before 2026, individual taxpayers and
certain trusts and estates may be entitled to a deduction of up to 20 percent of their

qualified business income (QBI) from a qualified trade or business (QTB), including

income from a pass-through entity, but not from a C corporation, plus 20 percent of

qualified real estate investment trust (REIT) dividends and qualified publicly traded
partnership (PTP) income. Depending on the taxpayer’s taxable income, the deduction

is subject to multiple limitations including the type of trade or business, the amount of
W-2 wages paid by the trade or business, and the unadjusted basis immediately after

acquisition (UBIA) of qualified property held by the trade or business. The deduction can
be taken in addition to the standard or itemized deductions.

Income earned from providing services as an employee or by a C corporation is not
eligible for the deduction.

REFERENCES

• IRC § 199A

• Treas. Reg. § 1.199A-1 through -6
• Rev. Proc. 2019-11 -
Determining W-2 Wages for QBI Purposes
• Notice 2019-07 -
Safe Harbor for Certain Real Estate Enterprises
• Section 199A – Deduction for Qualified Business Income FAQs

May 2019

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