Question

Mary owns a specified service business. She is married and files a joint return. Her firm has QBI of 400,000. W-2 wages of the business was $100,000 and the total basis of property held in the business was $500,000. Her taxable income before her QBI deduction was $406,600 (which was also her modified taxable income). What is Mary’s QBI deduction? Assume the same facts with respect to her business but her taxable income and MTI was $550,000. What is Mary’s qualified business deduction?

Answer 1

Since Mary taxable income as joint filer exceed $326600, QBI is lesser of

a. 20% of QBI=.20*400000=80000

OR'

b.greater of 50% of W-2 wages or the sum of 25% of W-2 wages +2.5% of the UBIA of all qualified property

=.50*$100000 or .25*100000+2.5%*500000

=50000 or 25000+12500 = 50000or 37500 whichever is greater

= 50000

Thus QBI = 80000 OR 50000 Which ever is less , QBI deduction= $50000

Section 199A does not apply when taxable income exceeds $426600. In second case Marys MTI is $550000. so no QBI deduction would be allowed