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How do I claim the Qualified Business Income Deduction as a Schedule K-1 Recipient?

SOLVEDby TurboTax1929Updated April 19, 2022

The Qualified Business Income (QBI) deduction, created by the 2017 Tax Cuts and Jobs Act, allows non-corporate taxpayers to deduct up to 20% of their qualified business income. Business owners and beneficiaries with income from a partnership, S corporation, or trust reported on Schedule K-1 are generally eligible for the QBI deduction. TurboTax will automatically make the QBI deduction calculation for you based on your Schedule K-1 entries.

Types of Schedule K-1 Forms

Starting in 2019, the information for your QBI deduction is associated with a certain box and code on your K-1. Your K-1 will also have an attached Section 199A Statement with the amounts needed to calculate your QBI deduction.

The QBI box and code on your K-1 depends on which type of K-1 you have:

  • For a partnership Form 1065 Schedule K-1, a Section 199A Statement is associated with box 20, code Z
  • For an S corporation Form 1120S Schedule K-1, a Section 199A Statement is associated with box 17, code V
  • For a trust Form 1041 Schedule K-1, a Section 199A Statement is associated with box 14, code I (as in India)

Here's how to enter this info in TurboTax:

To enter the information from your Section 199A Statement in TurboTax, follow these steps:

  1. Sign in to your TurboTax account
  2. Open or continue to your return 
  3. In the search bar, type Schedule K-1, then select the Jump-to link in the search results
    • If the Jump to link doesn’t work Select the Federal tab, then Wages & Income (Income & Expenses for TurboTax Self Employed)
    • Under S-corps, Partnerships, and Trusts, select Revisit or Start next to Schedule K-1
  4. Answer Yes to the questions Did you receive any Schedules K-1 or Q? and Did you receive any Schedules K-1?
  5. On the Tell us about your schedules K-1 screen, select Update if you're adding info to a K-1 you've already entered, or if you need to Add another K-1 to an existing entity type
  6. Continue through the interview until you get to the screen, Check boxes that have an amount for Trusts
  7. Check the appropriate box for your form and select Continue
  8. On the next screen, enter the appropriate code (Z, V, or I) and Section 199A statement amount.
  9. Continue answering the interview questions until you get to the screen, We see you have Section 199A income.Select the source of the income and Continue.
  10. Check any applicable boxes on the screen, We need some information about your 199A income. 
  11. Only enter amounts from your Section 199A Statement, not any of the other boxes on the K-1 form. When you check the box next to a line, an additional box will open where you can enter the amount from your Section 199A Statement for that line. Some options will include: 
    • Business income (loss)
    • 1231 gain (loss) 
    • Section 179 deduction 
    • Other deductions
    • W-2 wages
    • UBIA of qualified property
    • REIT Dividends

12. Continue, and you’ll see the screen, Let’s check for uncommon adjustments screen. Enter value(s) on Statement A that need to be changed and/or any business income received from a specified agricultural or horticulture cooperative on Statement C.

You may also want to explore the following options for more info about other specific situations that can affect your QBI.

Sometimes a K-1 reports Qualified Business Income (QBI) info not only for activities of that partnership, S corporation, or trust, but also for QBI passed to that partnership from another partnership, S corp, or trust.

If your K-1 reports Section 199A information for both the main entity and a pass-through entity, you must:

  1. Enter your K-1 as if it were two (or more) separate K-1s
    • One K-1 will report only the box amounts for the main entity, and a separate K-1 is needed for each pass-through entity
  2. Contact the preparer of the K-1 if it's unclear how to split the amounts from the information you have

Here's how to do this:

Here's how to enter separate K-1s for the main and pass-through entities

  1. Sign in to your TurboTax account
  2. Open or continue to your return
  3. After you’ve reported the info from the main entity, select Add another K-1 from the K-1 Summary screen
  4. Work through the interview. Once you've entered your specific box/code:
    • On the screen,We see you have Section 199A income screen select The income comes from another business
  5. Enter the name and EIN of the pass-through entity on the next screen and select Continue

Keep in mind: Even when there’s no Section 199A information, these situations require a separate K-1 in TurboTax for each type of activity. When K-1s such as these also have a Section 199A Statement with QBI information, the Section 199A Statement amounts must be split within those separate K-1s.

Keep in mind: a K-1 entry for QBI can be further complicated if:

  • Your K-1 has entries for any two boxes of boxes 1 through 3, or
  • There are rental activities reported on lines 2 or 3, where at least one of the rental activities is self-rented or land and there are also additional rental activities that are NOT self-rented or land

The SSTB designation reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels. Once your 2021 taxable income exceeds the threshold of $164,900 for Single tax filers and $329,800 for Married Filing Jointly, the IRS limits the QBI deduction for an SSTB. To properly calculate your QBI deduction, TurboTax asks if your business receives income from specified services.

Even if your K-1 entity doesn’t generate specified services income, if it makes money from selling to a SSTB that's at least 50% co-owned by your K-1 entity, you’ll need to report that amount. Once you tell TurboTax your K-1 entity has sales to a co-owned SSTB, you’ll be directed to either identify the percentage of your income related to sales to that co-owned SSTB, or allocate specific amounts of income from that co-owned SSTB.

If you are itemizing deductions and taking an itemized deduction for expenses related to your K-1 business (for example, you're deducting charitable contributions made in the name of your business or investment interest expense on a loan used to buy your business), you must subtract those deductions from your QBI. If you are taking the standard deduction, this doesn’t apply to you. 

To enter these amounts in TurboTax:

  1. Sign in to your TurboTax account
  2. Open or continue to your return
  3. On the Let’s check for some uncommon adjustments screen, check the box next to Value(s) on Statement A need to be changed. Additional boxes will open
  4. Enter the business expenses deducted as itemized deductions in the Other deductions related to QBI box

K-1 businesses that receive income from a specified agricultural or horticultural cooperative get an additional statement with their K-1 that reports the income, wages, and domestic production activity deduction (DPAD) for the business.

If your K-1 business fits this description:

  1. Sign in to your TurboTax account
  2. Open or continue to your return
  3. On the Let’s cover some uncommon situations screen, check the box next to This business received income from a specified agricultural or horticultural cooperative (Schedule C). Additional boxes will open for you to make entries
  4. Enter the values corresponding to your situation and Continue

When you prepare your tax return with TurboTax, the software automatically tracks and carries over your QBI business losses to the next year’s tax return.

The QBI deduction is based on net income, so if your business had a net loss you don't qualify for the QBI deduction for that year. A net loss gets carried over to the next year’s QBI calculation, and is used to offset any future year QBI income for your K-1 business.

In other words, when the QBI deduction is calculated, your current year’s QBI is reduced by any losses from the previous year. This is called a loss carryover.

If you are preparing your return for the first time in TurboTax, you’ll need to indicate that you have carryovers from the prior year, and manually enter those amounts.

Here's how to do this:

  1. Sign in to your TurboTax Online account
  2. Open or continue to your return
  3. In the section Wages & Income, enter the carryover amount under Other Business Situations
  4. Select Start next to Net Operating Loss/QBI Carryforward Loss
  1. Sign in to your TurboTax CD/Download Premier account
  2. Open or continue to your return
  3. Enter the carryover amounts in the Wages & Income section, under Business Items
  4. Select Start next to Business Deductions & Credits, then select Net Operating Loss
  1. Sign in to your TurboTax CD/Download Home & Business account
  2. Open or continue to your return
  3. Enter the carryover amounts in the Business Income & Expenses section
  4. Under Less Common Business Situations, select Start next to Net Operating Loss/QBI Carryforward Loss

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