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What is the Qualified Business Income Deduction?

The section 199A qualified business income (QBI) deduction was introduced by the Tax Cuts and Jobs Act of 2017. While the TCJA cut the C-corporation tax rate to 21 percent, the QBI deduction lets taxpayers deduct qualifying income connected to certain passthrough entities:

  • 20 percent of net qualified business income plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income

If the amount of qualifying net business income exceeds the threshold for a given tax year, it may be limited by a number of factors, like the type of business income being claimed, how much the taxpayer paid in W-2 wages, and business-owned capital property.

Specified service trades and businesses generally do not qualify for QBI unless the income derived from them is below a certain threshold.

Taxpayers who receive qualified business income from more than one qualified trade or business generally calculate QBI for each business separately. However, they can choose to aggregate those trades and businesses if they meet certain requirements.

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