Page 210 - Small Business IRS Training Guides
P. 210
Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION?
QBI COMPONENT
Reductions to the QBI Component (continued)
Above the Threshold and Phase-in Range
For taxpayers with taxable income above the threshold and phase-in range, the
computation for the QBI deduction is adjusted as follows:
1. SSTB is excluded from the definition of QTB, resulting in the items from SSTB’s
being excluded from QBI,
2. W-2 wage and UBIA limitations apply, and
3. QBI Component is reduced by the Patron Reduction.
Taxpayers above the threshold and phase-in range do not get to include any portion of
their SSTBs as QTBs. So, all items from an SSTB are excluded in determining the QBI
deduction. In addition, QBI for each QTB is limited based on W-2 wages paid by the
QTB and/or the UBIA of qualified property used by the QTB. The limitation provides that
the QBI for each QTB is limited to the lesser of:
• 20% of QBI from the QTB, or
• The greater of:
• 50% of W-2 wages paid by the QTB, or
• 25% of W-2 wages plus 2.5% of the UBIA of qualified property held for use in
the QTB.
In addition, the QBI Component is reduced by the Patron Reduction if they are a patron
in a specified agricultural or horticultural cooperative.
Example 4 –
Above the Threshold and Phase-In – Wage/UBIA Reduction
Don owns several parcels of land that he manages and operates as suburban parking
lots. He reports $1 million of QBI, he paid no W-2 wages, and has no UBIA. His
taxable income (before QBID) is $980,000.
Because his taxable income is above the threshold plus the phase-in range, his 20%
of QBI is limited to the greater of: 50% of wages or 25% of wages plus 2.5% of UBIA.
As wages and UBIA are zero his 20% of QBI and QBI deduction are reduced to zero
as follows.
QBI deduction is limited to the lesser of:
• 20% X $1,000,000 (QBI) = $200,000,
limited to the greater of:
o 50% x $0 (wages) = $0, or
o 25% x $0 (wages) + 2.5% x $0 (UBIA) = $0
OR
• 20% x $980,000 (TI) = $196,000
May 2019
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