Question

Roberto is single and has taxable income of $530,000 in 2018. As a 25 percent partner in a partnership that produces $820,000 of ordinary income from manufacturing a product, his share of partnership income is $205,000. The partnership paid $210,000 of W-2 wages and the total unadjusted basis of tangible depreciable business property is $360,000. What is Roberto’s qualified business income deduction?

Answer 1

Since the taxable income is above the limit of $157,500 the deduction is subject to limitation.

(1). 20% of QBI is $41,000 i.e., $205,000*20%

(2). Limitation of QBI deduction:-

1:- 50% of W-2 Wages = 50% of $210,000 = $105,000 (or)

2:- 25% of W-2 Wages plus 2.5% of Unadjusted basis of business property

= 25%*$210,000 + 2.5%*$360,000

= $61,500/-

Greater of above two options being $105,000 is the limitation as to the deduction under Qualified business income deduction.

Amount of Qualified business income deduction of Roberto's is $41,000 is within the limit of limitation of $105,000 and 20% of taxable income of $106,000 i.e., $530,000*20% . Hence the amount of $41,000 can be claimed.

answered by: anonymous