Menu

TaxBuzz Guides
Categories

Need help selecting a firm?

Tell us about your project and get introduced to the best accounting and tax firm for your needs.

Get Started

Qualified Business Income (QBI) - 199A Deduction

Learn how qualified business income (QBI) connects to the 199A deduction below. This is important information for all small business owners.

QBI is generally the net amount of income, gain, deduction, and loss relating to any qualified trade or business of the taxpayer to the extent these items are effectively connected with the conduct of a trade or business within the U.S. and included or allowed in determining taxable income for the year.

  • QBI Adjustments:
    • Ordinary gain attributable to the sale of partnership interest is included in QBI. (Sec 751)
    • Changes in accounting method adjustments, both positive and negative, are taken into account when figuring QBI. (Sec 481)
    • Puerto Rico - If all an individual’s QBI from sources within the Commonwealth of Puerto Rico are taxable to the U.S., then the QBI will qualify for the Section 199A deduction.
    • OBBBA 2025 added Business Development Company (BDC) interest dividends, effective 2026. These are defined as dividends from a BDC electing regulated investment company status, to the extent attributable to net interest income from a qualifying trade or business. BDC dividends, however, are excluded from QBI for a single trade or business, meaning they only boost the separate “combined QBI” amount.
  • QBI does not include:,
    • Certain investment items:
      • Any short- or long-term capital gain or loss.
      • Any dividend, income equivalent, or payment in lieu of dividends.
      • Any interest income other than that which is allocable to the trade or business.
      • Any item of gain or loss from commodity transactions or foreign currency transactions (as described in Sec 954(c)(1) subparagraphs (C) and (D) by substituting qualified trade or business for controlled foreign corporation).
      • Annuity income that is not received in connection with a trade or business.
      • Any item of deduction or loss described in the prior clauses.
    • Reasonable compensation paid to the taxpayer.
    • Guaranteed payment to a partner for services.
    • Guaranteed payment to a partner for services.
    • Payment to a partner for services rendered with respect to the trade or business.

TaxBuzz Guides