How does TurboTax business calculate ubia on 1120S?

[DanielV01]

Do you mean QBI?

[marydefrias]

No. Ubia. Unadjusted basis immediately after acquisition.  It relates to 199A

[DanielV01 · Accepted solution]

It is reported in box 17 with a code of X.  The UBIA is, in essence, the original basis of any item used in business before depreciation, special depreciation, or Section 179 deductions have been taken on the item owned by the business.  And as you comment, this amount can be used to help determine the QBI deduction, especially if the anticipated income is going to be above the Section 199A phase-out threshold for a non-SSTB business.

The QBI calculation is very intricate, but you will want to make sure the correct UBIA is reported in Box 17 with a code of X so that it can be passed through to shareholders and assist them to get the full amount of QBI deduction they are entitled to.

[paulhart]

The question was not where to put the number, but how did TurboTax come up with it? Why does TurboTax say that the UBIA for a rental property just purchased for 299,900, with no improvements, 100,000 equity and 78,000 land value is "$455,123"? Where does that number come from? 

[PremierUser]

I have the same question...how does TurboTax come up with the calculated UBIA number?  I'm currently using the MAC version of TurboTax Premier for Tax Year 2019 and am at a lost as to how this number is calculated.  This field is found on line 7 of Form 8995-A (Qualified Business Income Deduction) and line 9 of the Qualified Business Income Component Worksheet.  There doesn't seem to be a drill down to another form to show data source.  

I would really appreciate some help.  Thank you!

[DawnC]

You can find the detail in the source form - where is your QBID  generated from?  Schedule C, E, F, K-1, etc?    Do you have a Form 4562 listing assets in your return?  

The basis of qualifying property is calculated as the unadjusted basis immediately after acquisition of that property.

Qualifying property means:

• tangible property,
• depreciable property
• property that is available for use in the business at the close of the tax year
• property used in the production of QBI at any time during the year
• property for which the depreciable period has not ended before the close of the tax year

This is where the limitation calculations come into play. If a taxpayer has taxable income above the higher taxable income threshold and owns a business that is not a specified service trade or business, the QBI deductible amount for the business is subject to a limitation based on W-2 wages and/or capital.

‘Capital’ is measured as the unadjusted basis of certain business assets.

The deductible QBI amount for the business is equal to the lesser of:

• 20% of the business's QBI, or
• The greater of: (a) 50% of the W-2 wages for the business, or (b) 25% of the W-2 wages plus 2.5% of the business's unadjusted basis in all qualified property.

@PremierUser

[PremierUser]

Thank you so much for your quick response!  I do have form 4562 listing the home/home office.  The amount under the "Depreciation Basis" column is a bit less than the UBIA amount on line 7 of Form 8995-A (Qualified Business Income Deduction) and line 9 of the Qualified Business Income Component Worksheet.  Since the these forms don't drill down (in Forms mode), I don't know how to get to the exact UBIA number.

Since the UBIA number don't drill down or link to other forms, how do I reconcile?

[DawnC]

Did you check the Schedule C?  Or do you have a K-1 or Schedule E.   Is your QBI from 1 business activity or do you have more than 1 business aggregated?   You should be able to find the detail in the forms, but it may come from multiple places.  You said the amount on your 4562 is  little less than the 8995-A and the component worksheet - were these 2 numbers the same and do you have a vehicle listed for the business that is not included on the 4562?   

@PremierUser

[PremierUser]

I do have a schedule C.  Sole proprietorship.  Just one business. 

Yes, these 2 numbers are the same. Yes, I do have a vehicle listed and it’s included on the 4562, but there’s no value listed under the Depreciable Basis column. The only values for the vehicle on form 4562 are the Date In Service and Bus Use % column. How or where can I get the UBIA for the vehicle (if that is the cause of the difference)?

@DawnC 

[DawnC]

The UBIA amount for any asset is the original basis of the item used in business before depreciation, special depreciation, or Section 179 deductions have been taken on the item owned by the business.   The original basis is usually the original cost of the item and can be found under the original cost column on 4562.   Are any assets less than 100% business-use?

Under Sec. 199A(b)(6), the UBIA of qualified property generally equals the cost of tangible property subject to depreciation that satisfies all of the following criteria:

1. The property is both held by and available for use in the trade or business at the close of the tax year;
2. The property is used at any point during the tax year in the production of the trade or business's QBI; and
3. The property's depreciable period for UBIA of qualified property purposes has not ended before the close of the taxpayer's tax year. 

For purposes of the third criterion, the property's depreciable period is either 10 years after the property is placed in service, or the last day of the last full year of the property's normal Sec. 168(c) depreciable period, whichever is later. 

@PremierUser

[PremierUser]

Yes, the Home/Home Office is less than 100% business-use.  In this case, what would the UBIA amount be?

@DawnC 

[DawnC]

Assume the home’s unadjusted basis is $500,000 and the land portion is valued at $200,000. If the business use of the home is 10% then the UBIA of the home office would be $30,000 (($500,000 - $200,000) x 10%).  2.5% of the $30,000 would be only $750 and that would increase the 199A deduction by only $150.  

See David's explanation and answer in a similar discussion involving home office deductions and UBIA.      @PremierUser

[taxdean]

Hi Dawn,

You said: << If a taxpayer has taxable income above the higher taxable income threshold and owns a business that is not a specified service trade or business, the QBI deductible amount for the business is subject to a limitation based on W-2 wages and/or capital. >>

Did you mean that it IS a specified service trade or business, rather than is NOT?  The QBI Component Worksheet in TTax indicates (just above line 11 for the 2020 version) that there is a reduction if you DO have, rather than do not have, a SSTB.  Regardless, your words lead me to believe that my QBI deduction might not have been limited if I had just chosen a different description of my Schedule C business (run out of a home office).   Is that true?  If so, can you give me an example of anything in, say, the consulting or finance or investment or EXCEL guru(!) arena that I could choose that might cause this "reduction algorithm" to not be invoked by TurboTax?  Is it all about the 6 digit code I entered for schedule C?

Thanks for your help.  You are obviously one very sharp cookie!

[DawnC]

At higher income levels, the limitation kicks in for both SSTB and non-SSTBs.  However, with SSTBs there is a further reduction to the amount of the deduction.  You are correct that if your business was a non-SSTB, your deduction would be larger as it would not be subject to the further reduction.  Some of the 6 digit codes will automatically be treated as a SSTB, but TurboTax will ask that question (and a few others) to determine whether or not to trigger the SSTB treatment.   

Please see this FAQ which provides more details on what activities are considered a specified service, trade, or business (SSTB).   Because the official definition of an SSTB can be vague and open to interpretation, expanded definitions and examples can be viewed by clicking on any of the SSTB field links in the FAQ.