Question

Jason and Paula are married. They file a joint return for 2019 on which they report taxable income before the QBI deduction of $259,500. Jason operates a sole proprietorship, and Paula is a partner in the PQRS Partnership. Both are a qualified trade or business, and neither is a specified services business. Jason's sole proprietorship reports $181,600 of qualified business income, reports W–2 wages of $40,400, and owns qualified property of $17,500. Paula's partnership reports a loss for the year, and her allocable share of the loss is $32,500. The partnership reports no W–2 wages, and Paula's share of the partnership's qualified property is $9,600. Assume the QBI amount is net of the self-employment tax deduction.

What is their QBI deduction for the year?

Answer 1

Jason and Paula’s taxable income before the QBI deduction=$259,500. Therefore,W2 wages/capital investment limitation is not applicable to them.

Jason’s QBI amt=$36320 ($181600 x 20%).

Paula’s QBI amount= $(6500) [$(32500) x 20%]. Their combined qualified business income amount is $29820 [$36320+$(6500)]. As this amount is less than the overall limitation based on modified taxable income ($259500 x 20% = $51,900), their QBI deduction is $29820