Individual taxation
The QBI Deduction
Twenty percent of qualified business income, but above the threshold the SSTB cliff and the wage-or-UBIA cap take over.
How the exam words it
- -The stem gives passthrough or sole-proprietor income and asks for the section 199A deduction.
- -Taxable income sits above the threshold, triggering the wage and UBIA limitation.
- -The business is a specified service trade or business (health, law, accounting, consulting) and income is high.
- -It asks about the overall limit against taxable income minus net capital gain.
The playbook
- 1Start at 20 percent of qualified business income; below the taxable-income threshold that is the whole deduction, with no limits.
- 2Above the threshold, cap the deduction at the greater of 50 percent of W-2 wages or 25 percent of wages plus 2.5 percent of the UBIA of qualified property.
- 3Phase out an SSTB entirely once taxable income exceeds the top of the threshold range; below it an SSTB is treated like any other business.
- 4Cap the total at 20 percent of taxable income in excess of net capital gain; section 199A is now permanent under OBBBA.
The trap
Applying the wage and UBIA limit or the SSTB phase-out below the threshold. Under the threshold every business, including an SSTB, gets the full 20 percent with no wage or property test.
How the exam varies it
The same pattern, re-skinned along these axes:
Below versus above the taxable-income thresholdAn SSTB versus a qualified trade or businessThe wage-or-UBIA cap versus the overall taxable-income limit
Drill this pattern
8 questions of The QBI Deduction from across the AUD topics. Clear it by getting 5 right with a streak of 3.