Section 199(A) - Qualified Business Income Deduction (QBID)

The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, created IRC section 199A, Qualified Business Income Deduction (QBID), which allows eligible taxpayers (other than corporations) a deduction for income earned in a qualified trade or business conducted as a sole proprietorship or through a partnership, S corporation, estate, or trust, subject to certain limitations. Wages earned as an employee are not eligible for the deduction.

The QBID includes a deduction of up to 20% of Qualified Business Income (QBI) from a qualified trade or business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. QBI includes income from a qualified domestic trade or business. Amounts received as wages, capital gain, interest, and dividend income are not considered QBI, and are excluded from the calculation.

The QBID also includes a deduction of up to 20% of eligible taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

The QBID is limited to the lesser of (a) the sum of the amounts described in the paragraphs (2) and (3) above, or (b) an amount equal to 20% of the excess (if any) of taxable income of the taxpayer for the taxable year over the net capital gain of the taxpayer for the taxable year.

Qualified business income includes domestic income from a qualified trade or business. Employee wages, capital gain, interest and dividend income other than REIT dividends are not considered qualified business income and are excluded from the calculation. See Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs for additional information.

The QBID is available for tax years ending after December 31, 2017. For more information, see the Form 1040 Instructions or Publication 535, Business Expenses.

The Form 1041, 5227 and Form 990-T Instructions will direct taxpayers to refer to the Form 1040 Instructions for the appropriate tax year.

The Tax Cuts and Jobs Acts of 2017 (TCJA), Section 13823, allows a taxpayer to elect to defer capital gains timely invested in a Qualified Opportunity Fund (QO Fund).