Section 199A from a 1099 and income.

[marcschare]

For Tax Year 2020, I had a routine 1099 that including Section 199A dividends (Qualified Business Income Deduction) in the amount of around $700. Turbotax filled out form 8995-A and granted a deduction on my 1040. The IRS said that I wasn't entitled to the deduction because my income was too high, but the only reason my income was high is because of a large capital gain which Turbotax excluded from the income calculation. I have no idea if Turbotax is right or the IRS is right. There are no applicable instructions in the IRS documentation for whether excluding capital gains from income for this calculation is appropriate. The temptation to just send the IRS a check is pretty strong, but TT normally doesn't make calculation errors like this. Any suggestions? 

[Mike9241 · Accepted solution]

the 199A QBI dividend deduction is the lesser of:

1) 20% of the 199A dividends or

2) 20% of taxable income reduced by long-term capital gains and qualified dividends 

look at 8995-A lines 33 through 36 that's where 2 above comes in. 

while 34 says net capital gain the instructions clarify what's to be included

[marcschare]

Thank you for the response, Mike. I agree with your assessment and that the Turbotax calculation is correct. 

Now I'm faced with the conundrum of fighting over $200 or just letting it go.