Appendix Thirty-Four

• Author: Brian C. Vertz and Mitchell E. Benson
• Pages: 621-623

A - 211 Appendices Appendix Thirty-Four

APPENDIX THIRTY-FOUR

ΙΡΣ Φορµ 8995, Θυαλιφιεδ Βυσινεσσ Ινχοµε ∆εδυχτιον Σιµπλιφιεδ ∆εδυχτιον

2019

Instructions for Form 8995

Qualified Business Income Deduction Simplified Computation

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue

Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Form 8995 and

its instructions, such as legislation

enacted after they were published, go to

IRS.gov/Form8995.

General Instructions

Purpose of Form

Use Form 8995 to figure your qualified

business income (QBI) deduction.

Individual taxpayers and some trusts and

estates may be entitled to a deduction of

up to 20% of their net QBI from a trade or

business, including income from a

pass-through entity, but not from a C

corporation, plus 20% of qualified real

estate investment trust (REIT) dividends

and qualified publicly traded partnership

(PTP) income. However, your total QBI

deduction is limited to 20% of your taxable

income, calculated before the QBI

deduction, minus net capital gain.

Who Can Take the

Deduction

Individuals and eligible estates and trusts

that have QBI use Form 8995 to figure the

QBI deduction if:

•You have QBI, qualified REIT

dividends, or qualified PTP income or loss

(all defined later),

•Your 2019 taxable income before your

QBI deduction is less than or equal to

$160,700 ($160,725 if married filing

separately or a married nonresident alien;

$321,400 if married filing jointly), and

•You aren’t a patron in a specified

agricultural or horticultural cooperative.

Otherwise, use Form 8995-A, Qualified

Business Income Deduction, to figure your

QBI deduction.

S corporations and partnerships. S

corporations and partnerships aren’t

eligible for the deduction, but must pass

through to their shareholders or partners

the necessary information on an

attachment to Schedule K-1 to help them

figure their deduction. See the Instructions

for Form 1120-S, U.S. Income Tax Return

for an S Corporation, and Form 1065, U.S.

Return of Partnership Income.

Cooperatives. Cooperatives aren’t

eligible for the deduction. Instead,

cooperatives must provide the necessary

information to their patrons on Form

1099-PATR or an attachment to help

eligible patrons figure their deduction. See

the Instructions for Form 1120-C, U.S.

Income Tax Return for Cooperative

Associations, for rules applicable to

agricultural and horticultural cooperatives.

Estates and trusts. To the extent that a

grantor or another person is treated as

owning all or part of a trust or estate, the

owner will compute its QBI for the owned

part of the trust as if that QBI had been

received directly by the owner. Generally,

a non-grantor trust or estate may either

claim the QBI deduction or provide

information to their beneficiaries to help

the beneficiaries figure their deduction. In

determining the QBI deduction or the

information that must be provided to

beneficiaries, the estate or trust allocates

QBI items based on the relative proportion

of the estate's or trust's distributable net

income (DNI) for the tax year distributed

(or required to be distributed) to the

beneficiary or retained by the estate or

trust. If the estate or trust has no DNI for

the tax year, QBI, W-2 wages, and

unadjusted basis immediately after

acquisition (UBIA) of qualified property are

allocated entirely to the estate or trust.

Although estates and trusts may

compute their own QBI deduction, to the

extent QBI, W-2 wages, and UBIA of

qualified property is allocable to the trust,

QBI, W-2 wages, and UBIA of qualified

property allocated to beneficiaries aren’t

includible in the estate’s or trust’s QBI

computation. See the Instructions for Form

1041, U.S. Income Tax Return for Estates

and Trusts.

Electing Small Business Trusts

(ESBT). An ESBT must compute the QBI

deduction separately for the S and non-S

portions of the trust. Form 8995 used to

compute the S portion’s QBI deduction

must be attached as a PDF to the ESBT

tax worksheet filed with Form 1041. When

attached to the ESBT tax worksheet, the

trust must show that the information is

applicable to the S portion only, by writing

“ESBT” in the top margin of the Form

8995. See the Instructions for Form 1041.

Determining Your

Qualified Trades or

Businesses

Your qualified trades and businesses

include your trades or businesses for

which you’re allowed a deduction for

ordinary and necessary business

expenses under section 162. However,

trades or businesses conducted by

corporations and the performance of

services as an employee aren’t qualified

trades or businesses. Generally, specified

service trades or businesses (SSTBs)

aren’t qualified trades or businesses.

However, all or a part of the SSTB may be

qualified trade or business if your taxable

income is at or below the threshold or

within the phase-in range.

An activity qualifies as a trade or

business if your primary purpose for

engaging in the activity is for income or

profit and you’re involved in the activity

with continuity and regularity. If you own

an interest in a pass-through entity, the

trade or business determination is made at

that entity's level. Material participation

under section 469 isn’t required for the

QBI deduction. Eligible taxpayers with

income from a trade or business may be

entitled to the QBI deduction if they

otherwise satisfy the requirements of

section 199A.

The ownership and rental of real

property may constitute a trade or

business if it meets the standard

described above. Also, Revenue

Procedure 2019-38 provides a safe harbor

under which a rental real estate enterprise

will be treated as a trade or business for

purposes of the QBI deduction. Rental real

estate that doesn’t meet the requirements

of the safe harbor may still be treated as a

trade or business for purposes of the QBI

deduction if it’s a section 162 trade or

business.

The rental or licensing of property to a

commonly controlled trade or business

operated by an individual or a

pass-through entity is considered a trade

or business under section 199A.

Services performed as an employee

excluded from qualified trades or busi-

nesses. The trade or business of

performing services as an employee isn’t

a trade or business for purposes of section

199A. Therefore, any amounts reported

on Form W-2, box 1, other than amounts

reported in box 1 if “Statutory Employee”

Dec 12, 2019 Cat. No. 69662S

APPENDIX THIRTY-FOUR