Qualified business income deduction (QBID) overview (1040)

Alerts and notices

Starting in 2018, noncorporate taxpayers can deduct qualified business income against taxable income (not AGI). The Qualified Business Income Deduction (QBID) is generally 20% of a taxpayer’s qualified business income (QBI) from a partnership, S corporation, or sole proprietorship.

Individuals, trusts, and estates that have qualified business income (QBI), qualified real estate investment trust (REIT) dividends or qualified publicly traded partnership (PTP) income can qualify for the deduction. Partnerships and S Corporations can take it at partner or shareholder level on an individual return.

Qualified Business Income Deduction worksheets are available in Forms view, and supporting statements will print with the worksheets as necessary. The following information provides a brief overview of the calculations. For detailed information on the Qualified Business Income Deduction, see the IRS website.

Qualified business income

Qualified business income is the net amount of qualified income, gain, deduction, and loss related to the qualified trade or business. It does not include certain types of investment-related items.

Such as:

  • Capital gains or losses 
  • Dividend income
  • Interest income other than interest income that is allocable to the trade/business
  • Employee compensation paid to the taxpayer by the trade/business
  • Guaranteed payments to a partner

The deduction calculation considers REIT dividends, qualified cooperative dividends and qualified PTP income separately from QBI, so these items are also excluded when calculating qualified business income. 

Qualified business income and its respective deduction calculates individually for each qualified business. For each type of activity, UltraTax CS uses the following to calculate qualified business income.

  • Schedule C, line 31 - Net Profit
  • Form 4797, Ordinary Gains and Losses
  • The deductible portion of self-employment taxes
  • Contributions to self-employed SEP, SIMPLE, and qualified pensions
  • Self-employed health insurance deduction
  • Any exclusions for pre-TCJA suspended passive, at-risk, basis, and excess farm losses

A Qualified Business Income - Schedule C worksheet is available in Forms view in the C folder to review the calculation for QBI as well as any future suspended losses between those occurring prior to TCJA and those occurring in the current year. Use the Qualified business income (Force) field on the C-3 screen in the Business folder to adjust for income that does not qualify or to use a different amount (including zero).

Note: Business name must be entered on the C screen for proper reporting on QBI worksheets.

  • Schedule E, line 26 - Rental income and loss
  • Form 4797, Ordinary Gains and Losses
  • Any exclusions for pre-TCJA suspended passive, at-risk, basis, and excess farm losses

A Qualified Business Income - Rentals worksheet is available in Forms view in the E folder to review the calculation for QBI as well as any future suspended losses between those occurring prior to TCJA and those occurring in the current year. Use the Qualified business income (Force) field on the Rent-2 screen in the Rent & Royalty folder to adjust for income that does not qualify or to use a different amount (including zero).

  • Schedule F, line 34 - Net farm profit and loss
  • Form 4797, Ordinary Gains and Losses
  • The deductible portion of self-employment taxes
  • Contributions to self-employed SEP, SIMPLE, and qualified pensions
  • Self-employed health insurance deduction
  • Any exclusions for pre-TCJA suspended passive, at-risk, basis, and excess farm losses

A Qualified Business Income - Farm income worksheet is available in Forms view in the F folder to review the calculation for QBI as well as any future suspended losses between those occurring prior to TCJA and those occurring in the current year. Use the Qualified business income (Force) field on the F-3 screen in the Farm folder to adjust for income that does not qualify or to use a different amount (including zero).

  • Form 4835, line 32 - Net farm rental income and loss
  • Form 4797, Ordinary Gains and Losses
  • Any exclusions for pre-TCJA suspended passive, at-risk, basis, and excess farm losses

A Qualified Business Income - Farm rentals worksheet is available in Forms view in the 4835 folder to review the calculation for QBI as well as any future suspended losses between those occurring prior to TCJA and those occurring in the current year. Use the Qualified business income (Force) field on the 4835-2 screen in the Farm rental folder to adjust for income that does not qualify or to use a different amount (including zero).

If the 1120S or 1065 return was prepared in UltraTax CS, the QBI is calculated in the business return and can be shared with the 1040 client via data sharing. See the following articles for information on the QBI calculation:

Qualified business income calculated on the business return will data share to the Section 199A income field on the K1-7 screen. If you are not using data sharing, enter the amount reported on Schedule K-1 in this field. Qualified business income calculates using this amount, adjusted for the following:

  • 4797 Part II gains / losses (including net Section 1231 losses)
  • Section 179 expense
  • Depletion
  • Section 59(e) expenditures
  • Pre-productive period expenses
  • Reforestation expenses
  • Other deductions
  • Unreimbursed partnership expenses
  • Other income or loss
  • Debt financed acquisition
  • Dependent care benefits
  • Self-employment related deductions (partnerships only)
    • The deductible portion of self-employment taxes
    • Contributions to self-employed SEP, SIMPLE, and qualified pensions
    • Self-employed health insurance deduction
  • Any exclusions for pre-TCJA suspended passive, at-risk, basis, excess farm loss, and prior Section 179 carryovers. 

You may have to adjust this amount for income that does not qualify under Section 199A. You can review the calculation on the K-1 Reconciliation - Qualified Business Income worksheet in Forms view in the E folder.

If the 1041 return was prepared in UltraTax CS, the QBI is calculated in the 1041 return and can be shared with the 1040 client via data sharing. See the following articles for information on the QBI calculation: Section 199A, Qualified Business Income Deduction (1041)

For 1041 returns not prepared in UltraTax CS, enter the amount reported on Schedule K-1, Box 13 in the Section 1099A income field on the K1T-3 screen. If you calculated an amount different from what is reported on the K-1, enter that amount in this field. Qualified business income calculates using this amount, adjusted for any passive activity adjustments.

Calculating the deduction

The deduction is the lesser of:

  1. 20% of the taxpayer’s QBI, plus 20% of the taxpayer’s REIT dividends and PTP income, or
  2. 20% of the taxpayer’s taxable income minus net capital gains minus qualified cooperative dividends.

Limitations

There are limitations to the deduction:

  1. It cannot exceed the taxpayer’s taxable income (after net capital gain) for the tax year.
  2. Taxpayers who have taxable income exceeding $315,000 ($157,500 for single returns) are subject to limitations based on W2 wages paid by the business and the business’ unadjusted basis in acquired qualified property.
  3. A specified service trade or business does not qualify for the deduction unless the taxable income is less than the sum of the $315,000 ($157,500 for single returns) threshold plus $100,000 ($50,000 for single returns). UltraTax CS does not automatically determine if a business qualifies for this status, so you will need to check the Specified service business field on the C-3, K1-7 or K1T-3 screen to apply these threshold amounts when the Qualified Business Deduction – Simplified Worksheet is not calculating the deduction.

For taxpayer's whose taxable income exceeds the threshold, UltraTax CS uses the following to calculate the deduction on the Qualified Business Income Component Worksheet:

  • Wages on Schedule C, line 26 or the forced amount in the W-2 wages (Force) field on the C-3 screen in the Business folder.
  • Unadjusted basis of qualified property you enter in the asset module. This amount transfers to the the Qualified property field on the C-3 screen in the Business folder. If you are not using the asset module, you can enter the amount of unadjusted basis of qualified property used in this trade or business directly in this field.
  • Wages you enter in the W-2 wages field on the Rent-2 screen in the Rent & Royalty folder.
  • Unadjusted basis of qualified property you enter in the asset module. This amount transfers to the the Qualified property field on the Rent-2 screen. If you are not using the asset module, you can enter the amount of unadjusted basis of qualified property used in this trade or business directly in this field.
  • Wages on Schedule F, line 22 or the forced amount in the W-2 wages (Force) field on the F-3 screen in the Farm folder.
  • Unadjusted basis of qualified property you enter in the asset module. This amount transfers to the the Qualified property field on the F-3 screen. If you are not using the asset module, you can enter the amount of unadjusted basis of qualified property used in this trade or business directly in this field.
  • Wages on Form 4835, line 20 or the forced amount in the W-2 wages (Force) field on the 4835-2 screen in the Farm rental folder.
  • Unadjusted basis of qualified property you enter in the asset module. This amount transfers to the the Qualified property field on the 4835-2 screen. If you are not using the asset module, you can enter the amount of unadjusted basis of qualified property used in this trade or business directly in this field.
  • W-2 wages on Schedule K-1 entered in the Section 199A W-2 wages field on the K1-7 or K1T-3 screen.
  • Amounts entered in the Section 199A unadjusted basis field on the K1-7 or K1T-3 screen.

All section 199A amounts will be adjusted for basis, at-risk, and passive loss limitations, if applicable.

Troubleshooting

If you do not receive the result you expect, see the Qualified business income deduction calculations and troubleshooting to find out how to see the details on the calculations and how to correct common data entry problems.

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