Page 207 - Small Business IRS Training Guides

Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION?

QBI COMPONENT

Reductions to the QBI Component (continued)
Unadjusted Basis Immediately After Acquisition

For purposes of determining UBIA for all qualified property, the unadjusted basis
immediately after acquisition means the basis on the placed-in-service date. Qualified

property includes all tangible property subject to depreciation under IRC § 167 that is
held and used by the trade or business (or aggregated trade or business) during and at

the close of the tax year, for which the depreciable period hasn’t ended. The

depreciable period ends on the later of 10 years after the property is placed-in-service

or the last day of the full year for the applicable recovery period under IRC § 168(c),
the application of IRC § 168(g). Additional first-year depreciation, such as
regardless of

bonus depreciation, doesn’t affect the applicable recovery period.
Improvements to Property
Improvements to property are treated as a separate qualified property.

Like-Kind Exchanges and Involuntary Conversion

For qualified replacement property acquired in a section 1031 exchange that is of a like-

kind to the qualified relinquished property, or for qualified replacement property acquired

in a section 1033 involuntary conversion that is similar or related in service or use to the

qualified converted property, the UBIA of the qualified replacement property is the same

as the UBIA of the qualified property exchanged or converted, decreased by excess
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boot or increased by the amount money paid or the fair market value of property
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transferred by the taxpayer that is not of a like-kind or similar or related in service or

use. In addition, the depreciable period of the qualified like-kind replacement property

acquired in the section 1031 exchange or the qualified replacement property that is

similar or related in service or use to the converted property acquired in an involuntary
conversion generally ends on the same date as the relinquished or converted property,

except to the extent the taxpayer has excess UBIA in the qualified replacement

property. The depreciable period of any excess UBIA of the replacement property is

determined using the date on which the replacement property is first placed in service.

Property Received in Non-Recognition Transaction
Generally, property received in a non-recognition transaction (for example, IRC §§ 332,

351, 361, 721, or 731) retains the same UBIA and placed-in-service date as that of the

transferor. However, for the portion of the transferee’s UBIA that exceeds the

transferor’s UBIA, the portion is treated as a separate qualified property placed in
service on the date of the transfer.
Property Acquired 60 days Before Year End
Property acquired within 60 days of the year end that is disposed within 120 days

without being used by the trade or business for at least 45 days generally isn’t qualified
property.
May 2019

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