Page 195 - Small Business IRS Training Guides

Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION (CONTINUED)

TAXABLE INCOME LIMITATION
The taxpayer’s total qualified business income deduction (or the QBI Component plus

the REIT/PTP Component) is limited to 20 percent of taxable income, calculated before

the QBI deduction, less net capital gain. For an individual filing 2018 Form 1040, taxable
income equals Form 1040, line 7, Adjusted gross income, minus Form 1040, line 8,

Standard deduction or itemized deductions.

For the 2018 Form 1041, taxable income for the portion attributable to the trust equals
Form 1041, line 22, Taxable income, plus the amount of the QBI deduction included on

Form 1041, line15a, Other deductions.
Net Capital Gain
For purposes of the QBI deduction, net capital gain equals the taxpayer’s qualified
dividends plus their net long-term capital gain reduced by their net short-term capital

loss, but not below zero. For 2018 this information can be obtained from the following
lines on Form 1040.
• For taxpayers not required to file Schedule D (Form 1040), add

o The qualified dividends from Form 1040, line 3a, plus

o Any gain reported on Schedule 1 (Form 1040), line 13, Capital gain or
(loss).

• For taxpayers that file Schedule D (Form 1040), add

o The qualified dividends from Form 1040, line 3a, plus
o The smaller of Schedule D (Form 1040), line 15, Net long-term capital

gain or (loss) or line 16, unless either line 15 or 16 is zero or less, in which
case nothing is added to the qualified dividends.

For the 2018 Form 1041 U.S. Income Tax Return for Estates and Trusts, the net capital

gain information for the portion attributable to the trust deduction can be determined as

follows:
• For trusts not required to file Schedule D (Form 1041),

o The qualified dividends allocable to the trust from Form 1041, line 2(b)(2).
• For trusts that file Schedule D (Form 1041), add

o The qualified dividends allocable to the trust from Form 1041, line 2(b)(2),

plus

o The smaller of Schedule D (Form 1041), line 18a(2), Estate’s or trust’s

total for year Net long-term gain or (loss) or line 19(2), Estate’s or trust’s

(loss), unless either line 18(a)(2) or 19(2) is zero or less,
total net gain or
in which case nothing is added to the qualified dividends.
May 2019

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