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March 2019 Edition
Are You Eligible for the 20% Qualified Business Income Deduction?
Filomena Mealy, IRS Commuincations & Liason
The new deduction -- referred to as the Section 199A deduction or the deduction for qualified business income -- was created by the Tax Cuts and Jobs Act. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file allowing many owners of sole proprietorships, partnerships, trusts, estates and S corporations to deduct 20 percent of their qualified business income (QBI). Eligible taxpayers can also deduct up to 20 percent of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income
The QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers. Those with incomes above these levels, are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property. These limitations are fully described in the final regulations.
Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded. In addition, Notice 2018-64, provides methods for calculating Form W-2 wages for purposes of the limitations on this deduction. More information in the form of FAQs on Section 199A can be found on IRS.gov. The QBI deduction is not available for wage income or for business income earned by a C corporation.
For details on this deduction, including answers to frequently-asked questions, as well as information on other TCJA provisions, visit IRS.gov/taxreform.