Qualified Business Income Deduction Passive Activity

The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income qbi plus 20 percent of qualified real estate.

Qualified business income deduction passive activity. However the new law. The tax cuts and jobs act tcja added a new tax deduction for owners of pass through entities a 20 deduction of qualified business income qbi from a qualified trade or business. This deduction phases out 1 for every 2 of magi above 100 000 until 150 000 when it is completely phased out. Taxpayers trying to meet the criteria of the section 199a deduction.

Under the passive activity rules you can deduct up to 25 000 in passive losses against your ordinary income w 2 wages if your modified adjusted gross income magi is 100 000 or less. Rental activities do not generally rise to the standard of a trade or business but exceptions are available and our firm can recommend strategies for actively operated properties and specific types of rental exposures. See passive activity income and deductions later. Passive activity losses pals are not taken into account for the qbi deduction if they are.

Such a taxpayer is unlikely to need to attain the trade or business threshold needed under the passive activity rules of irc section 469 in order to take the qbi deduction. The 20 qualified business income deduction irc 199a is allowed on the income of a qualified trade or business. The qualified business income qbi deduction is a tax deduction for pass through entities. For details on net active income see the instructions for form 8810.

Learn if your business qualifies for the qbi deduction of up to 20. The tax cuts and jobs act passed in december of 2017. The qbi deduction offers a way to lower the effective tax rate on the profits of owners of pass through entities trade or business where the income passes through to the owner s individual tax return. To qualify for the qualified business income deduction the taxpayer must have a trade or business.

This new provision may potentially lower the maximum individual tax rate of 37 on pass through income to 29 8 which makes it more comparable to the new c corporation tax rate of 21. For a closely held corporation the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. The qualified business income qbi deduction under sec. Many owners of sole proprietorships partnerships s corporations and some trusts and estates may be eligible for a qualified business income qbi deduction also called section 199a for tax years beginning after december 31 2017.

The new qualified business income deduction concerns and strategies for real estate professionals. 199a brought issues to the 2018 tax year that ranged from learning and understanding the new code section to simply making sure the tax software was calculating the deduction correctly.