Limitations on the deduction for qualified business income (QBI) begin to phase in when an individual’s taxable income (calculated before any QBI deduction) exceeds the threshold of $157,500 or $315,000 for a married couple who files jointly. The limitations are phased in over a $50,000 taxable income range or a $100,000 taxable income range for a married couple who files jointly. They’re fully phased in when taxable income exceeds $207,500 or $415,000 for a married couple who files jointly.
When the limitations are fully phased in, the QBI deduction is limited to the greater of:
- The individual’s share of 50% of W-2 wages paid to employees and properly allocable to QBI during the tax year, or
- The sum of the individual’s share of 25% of W-2 wages plus the individual’s share of 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property.
The limitation involving the UBIA of qualified property is for the benefit of capital-intensive businesses. The UBIA of qualified property generally equals the original cost of the property.
In addition, an individual’s deduction can’t exceed the lessor of: 1) 20% of QBI plus 20% of qualified income from REITs and publicly traded partnerships (PTPs) or 2) 20% of the individual’s taxable income calculated before any QBI deduction and before any net capital gain (net long-term capital gains in excess of net short-term capital losses plus qualified
