QBI credit

[atdthompson]

I have a serviced based business and my QBI section said this:

"Your tentative qualified business income deduction of $8,691 was limited to $3,816 (20% of taxable income minus net capital gains.) My income was $48,469. Why am I not getting the full 20% if I qualify for the deduction?

[DavidS127 · Accepted solution]

You are getting the full amount according to the rules.

According to the IRS (see Q6 at this link), the QBI deduction is the lesser of:

1. 20 percent of the taxpayer's QBI, plus 20 percent of the taxpayer's qualified REIT dividends and qualified PTP income' or
2. 20 percent of the taxpayer's taxable income minus net capital gain.

Note also that for a "specified service trade or business" there is also a limitation if your taxable income exceeds a threshold amount.  For 2019, the threshold amount is $160,700 if single, $321,400 if married filing jointly.

[sjh99]

I have the same issue that it is limiting the deduction to the lower 20% of taxable income net of capital gain - I don't have any capital gain? Where did it get this?

THANKS!

[DavidS127]

If you are limited by the "20% of taxable income minus capital gain" rule, your taxable income is on line 11b and the capital gain to be subtracted is on line 6.  If there is no capital gain on line 6, the 20% is applied to the line 11b amount.

If your are not receiving 20% of your QBI/REIT Dividends/PTP income, and 20% of your line "11b minus line 6" amount does not equal your QBI deduction, other limits may be at work.   For example, there are limits when your taxable income exceeds the "threshold amount".  See Q6 at this IRS website for more information on the limits that apply when your taxable income exceed....

[rdipre]

I have the same issue and I don't have anything on line 6 and I only have 60K total income...is this an issue with turbo tax?

[DavidS127]

More information about your specific numbers may help resolve your issue.  For example, what is your type of business entity, is your business an SSTB (specified services trade or business), is your taxable income is more than $160,700 for Single status (or more than $321,400 for Married Filing Joint status)?

@rdipre

[Anonymous]

the law specifies that QBI deduction is limited to 20% of taxable income reduced by long term capital gains and qualified dividends - code sec 199A(a)

[hamkyleham]

I am yet another person seeing this limit to my QBI (below the 20% allowed deduction), based on a "net of capital gain" that simply does not exist.  I strongly suspect this is a software glitch taht Turbotax NEEDS TO ADDRESS.  (For example, I other softwares, such as HR Block, are allowing the full 20% QBI given the SAME INPUT INFORMATION.)

[AliciaP1]

The full wording of the calculation is "20% of the lesser of QBI or taxable income minus capital gains and dividends". 

This takes your net qualified business income and subtracts your personal gains and any personal dividends, then multiplies that by 20%, unless your taxable income (line15 of Form 1040)  is in excess of $164,900 (or $329,800 if you are married filing jointly). 

There are additional calculation limitations above that for different types of businesses but they are rare.

@hamkyleham

[yfinkle]

I hope you can help.  We have QBI from our restaurant/S-corp fililng jointly and our income exceeds the threshold and phase in.  TurboTax appears to still be taking the full 20% deduction using part II of form 8995A for both my wife and I.  This seems to be addressed in Q15 but its unclear to me.  I'm letting a tax pro do my taxes this year because everything seems too confusing and she said we SHOULD NOT get any deduction.  TurboTax disagrees.  Can you shine any light into this?

[AliciaP1]

Since we cannot see the details of your tax return here on this forum, and the limits to completely disqualify the QBI deduction are quite high, you need to trust your judgment with the skills of the CPA you hired to complete your return to complete it accurately.

@yfinkle

[RKG2]

I am having the same problem with my 2024 tax return on turbotax.  I have not even gotten to the part where I have entered any capital gains or dividends.  The first thing is entering business income and expenses.  My net income is $84,000 and I'm getting the limit of 20% of taxable income less capital gains.  How can this be? My deduction is going from the $16,800 down to $10,400 with no investment income recorded ANYWHERE in turbotax.  This is a fairly sizeable reduction.  Do I need to alter my forms manually to remove this limitation?

[ThomasM125]

One issue could be a carryover QBI loss from the previous year. That would reduce you current year QBI income by losses sustained in previous years.

Another issue could be if you reported dividends or capital losses in your business entries that would limit your QBI income.

Also, you need to subtract from your business income any self-employment tax deduction, self-employed health insurance or self-employed retirement plan contributions to arrive at your QBI income on which the 20% is applied.  

@RKG2