Who May Take the QBI Deduction?
The Qualified Business Income (QBI) deduction, established under Section 199A of the Internal Revenue Code, allows eligible individuals, estates, and trusts to deduct up to 20% of their net QBI from pass-through entities such as partnerships, S corporations, and sole proprietorships. However, eligibility is subject to specific criteria.
Eligibility Criteria
- QBI, REIT Dividends, or PTP Income: You must have qualified business income (QBI), qualified REIT dividends (also known as Section 199A dividends), or qualified publicly traded partnership (PTP) income or loss.
- Income Thresholds:
- For single filers, married filing separately, head of household, qualifying surviving spouse, or trusts/estates: taxable income before the QBI deduction must be ≤ $197,300.
- For married filing jointly: taxable income before the QBI deduction must be ≤ $394,600.
- Not a Patron in Specified Cooperatives: You must not be a patron in a specified agricultural or horticultural cooperative.
Forms to Use Based on Eligibility
- Form 8995 (Simplified Computation): Use this form if you meet all three eligibility criteria above. This form is designed for taxpayers with taxable income within the threshold limits.
- Form 8995-A (Detailed Computation): Use this form if you do not meet all three criteria, such as if your taxable income exceeds the thresholds or if you are a patron in a specified cooperative.
What Is Included in QBI?
QBI includes qualified items of income, gain, deduction, and loss from trades or businesses effectively connected with the U.S. This includes income from:
- Partnerships (excluding PTPs)
- S corporations
- Sole proprietorships
- Certain estates and trusts
Items such as unreimbursed partnership expenses, business interest expense, deductible part of self-employment tax, self-employment health insurance deduction, and contributions to qualified retirement plans may also be included in QBI.
What Is Excluded from QBI?
- Amounts deducted under IRC 224 for qualified tips
- Items not properly includible in income
- Items disallowed or limited by basis, at-risk, passive loss, or excess business loss rules (until included in taxable income)
Source:
Form 8995
Form 8995-A
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.