- For 2025, a single taxpayer has taxable income of $70,000 after taking into account all items from two sole proprietorships. The taxpayer materially participates in both businesses. Business 1 produced $15,000 of qualified business income and paid no wages; Business 2 produced a $25,000 qualified business loss and paid no wages. What is the taxpayer's IRC § 199A deduction for 2025, and how is the negative combined QBI treated?
Answer: $0 deduction; the $10,000 net negative QBI is carried to 2026 and reduces the taxpayer's QBI for 2026.
IRC § 199A(c) provides that QBI is the net amount of qualified items of income, gain, deduction, and loss, and that when the net amount is negative, no deduction is allowed and the negative amount is treated as a loss from a qualified trade or business in the succeeding tax year. For multiple businesses, positive and negative QBI amounts are combined. Here, $15,000 − $25,000 = −$10,000, so no § 199A deduction is allowed for 2025 and the $10,000 negative combined QBI carries to 2026 to reduce 2026 QBI. The 20% taxable-income limitation is irrelevant because the combined QBI amount is negative. Choice A mischaracterizes the Business 2 loss as disallowed rather than netting it against the positive QBI. Choice C treats the 20% taxable-income limitation as the deduction itself and ignores the negative combined QBI. Choice D fails to net the $15,000 positive QBI against the loss, carrying over the full $25,000.
- What is the amount of Priya's §199A deduction for 2025?
Answer: $17,000
IRC § 199A(a), (b), and (c) govern the deduction. A sole proprietor's QBI is Schedule C net profit reduced by the deductible part of self-employment tax, self-employed health insurance, and self-employed retirement plan contributions attributable to the business. Priya's QBI is $120,000 - $8,500 - $8,000 - $5,000 = $98,500, so the tentative deduction is 20% of $98,500, or $19,700. Because her taxable income before the deduction ($85,000) is below the 2025 single threshold of $197,300, the W-2 wage limitation does not apply. However, the deduction cannot exceed 20% of modified taxable income; with no capital gains or qualified dividends, that limit is 20% of $85,000, or $17,000. Choice B is correct. Choice A is 50% of the $30,000 of W-2 wages, an erroneous application of the wage limitation below the threshold. Choice C is the tentative 20% of QBI without applying the overall taxable-income limitation. Choice D is 20% of Schedule C net profit, ignoring the owner-deduction reductions to QBI and the overall limitation.
- What amount can Rafael deduct under §199A for 2025?
Answer: $6,360
IRC § 199A(b)(3)(B) and (d)(3); Form 8995-A, Schedule A and Part III. Rafael's taxable income of $232,300 is $35,000 above the 2025 single threshold of $197,300, and $35,000 is 70% of the $50,000 phase-in range, so his consulting practice is a specified service trade or business inside the phase-in range. First, the applicable percentage is 100% - 70% = 30%, so only 30% of the QBI and W-2 wages are taken into account: QBI $120,000 x 30% = $36,000 and W-2 wages $40,000 x 30% = $12,000. Next, 20% of the applicable QBI is $7,200 and 50% of the applicable W-2 wages is $6,000. Because taxable income is inside the phase-in range, the W-2 wage limitation is itself phased in: the $1,200 excess of $7,200 over $6,000 is reduced by 70%, a reduction of $840, so the QBI component is $7,200 - $840 = $6,360. The overall limit of 20% x $232,300 = $46,460 does not bind, so the deduction is $6,360, which is Choice C. Choice A ($0) treats the specified service trade or business as wholly disqualified once taxable income exceeds the threshold, ignoring the phase-in range. Choice B ($6,000) applies the full W-2 wage limitation, which applies in full only when taxable income exceeds the top of the range ($247,300), instead of phasing it in. Choice D ($7,200) ignores the W-2 wage limitation entirely.
- For 2025, a single taxpayer has taxable income of $300,000, including a $30,000 net long-term capital gain from the sale of investment securities. The taxpayer owns a sole proprietorship (not a specified service trade or business) that generated $100,000 of qualified business income. The business paid no wages and owns no qualified property. What is the taxpayer's deduction under IRC § 199A?
Answer: $0; the full W-2 wage and qualified property limit applies at this income level, and the limit is zero.
Under IRC § 199A(b)(2)(B) and (b)(3), a qualified trade or business's qualified business income amount is 20% of QBI, but limited by the greater of 50% of the business's W-2 wages or 25% of such wages plus 2.5% of the unadjusted basis of qualified property. That limitation is phased in for taxable income between the threshold ($197,300 for single filers in 2025) and the end of the phase-in range ($247,300); above that range it applies in full. This taxpayer's taxable income is $300,000, so the full limitation applies. With no W-2 wages and no qualified property, the greater-of amount is zero, so the qualified business income amount is zero. Because the combined QBI amount is zero, the § 199A deduction is zero. The $54,000 figure—20% of ($300,000 − $30,000)—is the overall cap, not a source of deduction. Choice A misapplies the net capital gain reduction to QBI; that reduction is made only in computing the overall cap. Choice B treats the overall cap as the deduction. Choice C ignores the W-2 wage and qualified property limit.
- What is her § 199A deduction for 2025?
Answer: $14,000, using 20% of the 2025 QBI reduced by the 2024 negative QBI carryforward.
IRC § 199A(c)(2). A net negative QBI is carried forward and offsets QBI in the next taxable year before the 20% rate is applied. The 2025 QBI is $100,000 − $30,000 = $70,000, so the deduction is 20% × $70,000 = $14,000. The deduction is limited to 20% of taxable income (20% × $120,000 = $24,000), which does not bind; and, because her taxable income is below the 2025 threshold for single filers ($197,300), the W-2 wage/qualified-property limitation does not apply. Choice A ignores the carryforward; Choice C uses the overall taxable-income cap as the deduction; Choice B applies the carryforward to taxable income rather than to QBI.
- What is the couple's § 199A deduction for 2025?
Answer: $27,500, using 20% of manufacturing QBI, limited to 25% of manufacturing W-2 wages plus 2.5% of its UBIA.
IRC §§ 199A(a)(2), (b)(2), and (d)(2). Choice C is correct. Taxable income of $520,000 is above the MFJ phase-in range, which ends at $494,600, so the full W-2 wage/UBIA limitation applies and the law practice, an SSTB, is excluded from QBI. The manufacturing business has a tentative component of 20% × $200,000 = $40,000. Its limitation is the greater of 50% × $10,000 = $5,000 and 25% × $10,000 + 2.5% × $1,000,000 = $27,500, so the component is limited to $27,500. The overall cap is 20% × $520,000 = $104,000 and does not bind. Choice A includes the excluded law practice QBI; Choice B includes law practice QBI while applying the limitation only to manufacturing; Choice D ignores the W-2 wage/UBIA limitation.
- What is the amount of Raúl's §199A deduction for 2025?
Answer: $8,400
IRC § 199A(b)(3)(B) and (d)(3), as applied on Form 8995-A. A medical practice is a specified service trade or business. Raúl's taxable income exceeds the 2025 single threshold of $197,300 by $20,000, so $20,000 / $50,000 = 40% of the phase-in range is used and the applicable percentage is 60%. Only 60% of his QBI and W-2 wages are taken into account: $60,000 of QBI and $6,000 of wages. Twenty percent of $60,000 is $12,000, and the wage limit is 50% × $6,000 = $3,000 (the 25%-of-wages-plus-2.5%-of-property alternative is only $1,500). Because his income is within the phase-in range, the wage limit is not applied in full: the $12,000 is reduced by 40% of the $9,000 excess over the wage limit, or $3,600, giving $12,000 - $3,600 = $8,400. The 20%-of-taxable-income limit of $43,460 does not bind. Choice C is correct. Choice A applies the full wage limit as though income were above the phase-in range. Choice B applies the full wage limit to the unreduced $10,000 of wages. Choice D omits the wage limitation entirely.
- What amount can Taylor deduct under §199A for 2025?
Answer: $30,000
IRC § 199A. Because Taylor's taxable income ($150,000) is below the 2025 single threshold ($197,300), neither the specified-service phase-out nor the W-2 wage/property limitation applies. Her combined QBI is $100,000 + $80,000 = $180,000, and 20% of that amount is $36,000. The deduction is limited to 20% of taxable income, or $150,000 × 20% = $30,000, so the correct deduction is Choice C ($30,000). Choice A ($16,000) uses only the manufacturing business's QBI and omits the consulting business; below the threshold, a specified service trade or business is still a qualified trade or business. Choice B ($23,000) applies the W-2 wage/property limitation below the threshold ($15,000 for consulting plus $8,000 for manufacturing); that limitation starts only when taxable income exceeds the threshold. Choice D ($36,000) is the tentative 20% of combined QBI before applying the overall 20%-of-taxable-income limit.
- What is the taxpayer's § 199A deduction for 2025?
Answer: $50,000, using 20% of the S corporation's K-1 ordinary income as QBI.
IRC §§ 199A(b)(2) and (c)(4). Choice D is correct. Reasonable compensation paid to an S corporation shareholder is not QBI, but it is included in the corporation's W-2 wages for the § 199A limitation. The taxpayer's QBI is the $250,000 of K-1 ordinary income, so the tentative component is $50,000. The W-2 wage limit is 50% × $150,000 = $75,000, which is greater than the tentative component, so no phase-in reduction is made; the overall cap is 20% × $420,000 = $84,000 and does not bind. Choice A treats the W-2 wages as QBI; Choice C treats the wage limit as the deduction; Choice B applies the phase-in percentage even though the wage limit did not bind.
- Which of the following is correct regarding a specified service trade or business (SSTB) for purposes of the IRC § 199A deduction in 2025?
Answer: Architecture services are not treated as an SSTB for purposes of the § 199A deduction.
IRC § 199A(d)(2), by cross-reference to § 1202(e)(3)(A), lists health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, and trades whose principal asset is the reputation or skill of employees or owners. Engineering and architecture are not listed. Choice B is therefore correct. Choice A is wrong because engineering services are not an SSTB at any income level. Choice C adds an ownership condition that the statute does not contain. Choice D is wrong because consulting services are an SSTB without regard to the industry of the client.
- Which of the following is correct regarding the combined qualified business income amount under IRC § 199A for 2025?
Answer: Qualified REIT dividends and qualified publicly traded partnership income are included in the combined amount and are not subject to the W-2 wage and qualified property limitation.
IRC § 199A(b)(1) provides that the combined qualified business income amount is the sum of the qualified business income amount, 20% of qualified REIT dividends, and 20% of qualified publicly traded partnership income. The W-2 wage and qualified property limitation under § 199A(b)(2)(B), when applicable, applies only in computing the qualified business income amount with respect to a qualified trade or business; qualified REIT dividends and qualified publicly traded partnership income are not subject to that limitation, although the combined amount remains subject to the overall limitation in § 199A(b)(3). Choice C is correct. Choice A is wrong because § 199A(c)(4)(A) excludes reasonable compensation paid by an S corporation to its shareholder-employee from QBI. Choice B is wrong because § 199A(c)(4)(B) excludes guaranteed payments for services described in § 707(c) from QBI, rather than merely subjecting them to the W-2 wage and qualified property limitation. Choice D is wrong because § 199A(d)(1)(B) provides that the trade or business of performing services as an employee is not a qualified trade or business, so W-2 wages are not QBI.
- What is the correct amount of her § 199A deduction for 2025?
Answer: $20,920, using 20% of the retail QBI and 20% of the phase-in-adjusted consulting QBI.
IRC §§ 199A(a), (b)(2), and (d)(2)-(3). Choice B is correct. For 2025, the single threshold is $197,300 and the phase-in range ends at $247,300. Because taxable income before the deduction is $220,000, the phase-in percentage is ($220,000 − $197,300) / $50,000 = 45.4%, and the applicable percentage is 54.6%. For the consulting SSTB, both QBI and W-2 wages must be multiplied by 54.6%: QBI is $54,600 and W-2 wages are $21,840. The consulting component is 20% of $54,600 = $10,920, and 50% of the reduced W-2 wages is $10,920, so the wage limit does not reduce it. The retail store is not an SSTB, so its QBI is not reduced: 20% of $50,000 = $10,000, and 50% of $20,000 of W-2 wages = $10,000, so that component is $10,000. Neither business has qualified property, so no UBIA-based limit applies. The combined QBI component is $20,920. The 20%-of-taxable-income cap is 20% of $220,000 = $44,000, which does not bind. Choice A ignores the SSTB phase-in and takes 20% of the combined $150,000 QBI. Choice C applies the SSTB phase-in reduction to the retail business as well: 20% of ($150,000 × 54.6%) = $16,380. Choice D substitutes the overall taxable-income cap for the QBI components.
- What is his § 199A deduction for 2025?
Answer: $30,000, applying 20% to QBI and capping the result at 2.5% of the UBIA.
IRC §§ 199A(a)(2), (b)(2), and (b)(6). Choice C is correct. Taxable income of $260,000 is above the single phase-in range, so the full W-2 wage/UBIA limitation applies. The tentative component is 20% × $180,000 = $36,000. With no W-2 wages, the limitation is the greater of zero and 2.5% × $1,200,000 = $30,000, so the component is limited to $30,000. The overall cap is 20% × $260,000 = $52,000 and does not bind. Choice A ignores the UBIA limitation; Choice B incorrectly requires W-2 wages even though UBIA alone can support the limitation; Choice D subtracts the 2.5% UBIA amount from the tentative component instead of treating it as a cap.
