Question

Patricia is a 25% owner and an active member in the PBK LLC, which operates a "qualified trade or business" for purposes of the deduction under § 199A. Patricia's distributive share of "qualified income" from the LLC is $250,000 for the year (the LLC's income is $1,000,000). Her share of the LLC's W-2 wages is $40,000, plus she received a guaranteed payment for services of $30,000. Her share of the LLC's "unadjusted basis immediately after acquisition of qualified property" is $1,200,000. How much is her qualified business income for this separate trade or business?

a. $20,000.

b. $40,000.

c. $50,000.

d. $35,000.

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Answer 1

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Answer is highlighted in yellow: Solution: $ 40,000 Answer: Explanation: Step.01: QBI deduction without any limit (20% of Net income) (250000*20%) $ 50,000 Step.02: Appling two limitation: Greater of below: a) 50% of W-2 Wages = (40000*50%) $ 20,000 b) 25% of W-2 Wages + (2.5% of Qualified property) = (40000*25%)+(1200000*2.5%) = $ 40,000 Allowable QBI deduction (refer above) $ 40,000