Page 203 - Small Business IRS Training Guides

Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION?

QBI COMPONENT

Qualified Business Income (continued)
• Qualified REIT dividends, which are includible in the REIT/PTP Component.

• Qualified PTP income or loss, which is includible in the REIT/PTP Component.

Loss Netting

If any of trade or business or aggregation has a net loss for the current year or the

taxpayer has a qualified business net loss carryforward from prior years, the loss must

offset the net income from the other trades or businesses. See Example 3. Further, the

net loss must be apportioned among all the trades or businesses with net income in

proportion to that trade or business’ net income. See the Comprehensive Example, step
3.

Note. If the taxpayer has an overall net loss for the year, they don’t qualify for a QBI

deduction in the current year and the net loss is carried forward and treated as a

separate trade or business that reduces QBI in the succeeding taxable years.
Reductions to the QBI Component

Although IRC § 199A provides for a deduction of up to 20 percent of the QBI

Component, reductions may apply that decrease the amount of the QBI Component.
The QBI Component is partially or fully reduced when the taxpayer’s taxable income,

before the QBI deduction, exceeds the threshold. If taxable income, before the QBI
is
deduction, :
• At or below the threshold, the QBI Component is not reduced,

• Above the threshold and phase-in range, the full reduction applies,

• Above the threshold but within the phase-in range, the reduction is phased-in.

The full reduction limits the QBI Component to the greater of 50 percent of wages from

the QTB, or 25 percent of wages plus 2.5 percent of the UBIA of qualified property from

the QTB. The partial reduction is phased-in based upon the amount by which the
taxpayer’s taxable income exceeds the threshold but does not exceed the phase-in

range.
May 2019

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