Page 216 - Small Business IRS Training Guides

Qualified Business Income Deduction

COMPEHENSIVE EXAMPLE (CONTINUED)
Example 7 (continued)

Step 3 – Loss netting.
Fred’s gas station generated a loss; therefore, the loss must be netted against the

income of his other trades or businesses.

Trade or Business QBI/(loss) Reduction Adjusted QBI
Aggregation 1 180,000 (6,954)* 173,046
Accounting Firm 1,200 (46)** 1,154
Gas Station (7,000) 0
*180,000/(180,000 +1,200) x (7,000) = (6,954)
**1,200/(180,000 + 1,200) x (7,000) = (64)

Step 4 –
Phased in reduction.

As Fred’s taxable income is above the threshold but below the phase-in range, his 20%

QBI is partially reduced by the phased-in reduction for any trade or business where the

limitation (wage or UBIA) is smaller than the 20% QBI.

Aggregation 1 Accounting Firm Gas Station
34,609
231
0

20% QBI
(173,046 x 20%)
(1,154 x 20%)
($0 x 20%)
30,000
500

50% wages
0
(60,000 x 50%)
(1,000 x 50%)

16,500
250

25% wages + 2.5%
(60,000 x 25% +
(500 x 25% + $0 x
0

UBIA
60,000 x 2.5%)
2.5%)

Limited
Not Limited
Not Applicable

Only Fred’s Aggregation 1 trade or business is subject to the phase-in reduction,

because it is the only one where the limitation is smaller than the 20% QBI. The phased-

in reduction is computed as follows:

The greater of: Taxable Income* -Threshold
20% QBI - a) 50% of Wages, or X Total Phase-In Range

b) 25% of Wages + 2.5% of UBIA

Reduction for Aggregation 1:

34,609 205,500 – 157,500
(173,046 x 20%) - 30,000* X 50,000 = $4,425

* The greater of:

• (60,000 x 50%) = $30,000 or
• (60,000 x 25%) + (60,000 x 2.5%) = $16,500

May 2019

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