About QBI Suspended Passive Loss Carryovers

[mlpinvestor]

So I’m confused how these work, at least with respect to MLPs/PTPs.  I always assumed this was just something Turbotax handled internally.  But I found this article about them, and now I’m not sure if I’m doing this right or not.  See https://www.journalofaccountancy.com/issues/2020/nov/sec-199a-qualified-business-income-deduction-ne...

According to this author, negative QBI from one business is to be distributed proportionately across any others having positive QBI, thereby offsetting it.  Turbotax, as far as I can tell, has not been doing this.  I have negative QBI in most years from my MLPs that just gets carried over and accumulated year to year (individually for each).

By contrast, I have positive QBI from reits that Turbo gives me the 20% deduction on in full, I think.  Instead of this, should these two QBI sources net with each other annually?  What’s more, the article goes on to say that any remaining negative QBI gets aggregated at the end of a tax year and carried over to the next year.  This would seem to obviate any MLP-specific carryover, even though Turbotax provides a QBI loss carryover worksheet for each MLP.

I assume MLP QBI must just be somehow different from other business QBI.  At what point do negative QBI carryovers become unsuspended?  Only when a particular MLP has positive QBI in a tax year, and then only for that MLP’s QBI carryovers?  Turbotax seems to think so.  For midstream O&G, that's rarely the case.

What happens to all this negative QBI carryover when a partnership is sold?  Or after 2025, assuming the TCJA that created QBI isn’t extended?

[tagteam]

I believe @Mike9241 can help. Please check back later.

[Mike9241 · Accepted solution]

PTPs/MLPs  profits and losses and REIT dividends get special tax treatment. each PTP/MLP stands on its own for passive income/losses purposes and QBI income/losses.  REIT dividends also get the QBI deduction so if you have a PTPs/MLPs income and or REIT dividends and others with losses the losses are suspended but the income ones and REIT dividends are allowed for the special QBI deduction which is 20% of their income (business income in cases of PTP/MLP). wages and UBIA are not included in the computation

see QBI deduction summary line 10

REIT dividends are on line 9

these numbers also appear on form 8995 or 8995A

this is from the article you linked to

Losses arising from qualified REIT dividends and publicly traded partnership (PTP) income are classified separately from other sources of QBI. A business owner with negative overall qualified REIT dividends and PTP income receives a zero QBI deduction related to this category. The overall loss amount carries forward to offset future qualified REIT dividends and PTP income. A taxpayer may therefore have two categories of negative QBI carryforward amounts: one from the QBI component and one from the qualified REIT dividends and PTP income component.

from IRC 199A

(1)In general
The term “combined qualified business income amount” means, with respect to any taxable year, an amount equal to—
(A)the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus
(B)20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year.

(c)Qualified business income
For purposes of this section—
(1)In general
The term “qualified business income” means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends or qualified publicly traded partnership income.

(3)Qualified REIT dividend
The term “qualified REIT dividend” means any dividend from a real estate investment trust received during the taxable year which—
(A)is not a capital gain dividend, as defined in section 857(b)(3), and
(B)is not qualified dividend income, as defined in section 1(h)(11).
(4)Qualified publicly traded partnership income
The term “qualified publicly traded partnership income” means, with respect to any qualified trade or business of a taxpayer, the sum of—
(A)the net amount of such taxpayer’s allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) [2] which is not treated as a corporation under section 7704(c), plus
(B)any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a).