Alice and Bob, married, are the sole owners of AB, LLC. The LLC is a qualified trade or business and has QBI of $350,000 after all applicable deductions (including $100,000 W-2 wages paid to employees). AB has $1,400,000 qualified property in service. Their taxable income before the QBI deduction is $463,900 which neither includes long-term capital gains nor qualified dividends. What is their QBI deduction for the current year?

Question

BlackTom AI · Accepted Answer

We need to determine the QBI deduction for AB, LLC given the data. 
First, compute the basic 20% of QBI: 20% of 350,000 equals 70,000. This is the upper bound from the QBI itself before any wage/property limitations. 
Next, evaluate the wage/property-based limitation, which caps the deduction for non-SSTB (non-specified service) businesses. There are two potential expressions of this limit, and we take the greater of them as the cap to compare against the 20% QBI amount:

Option A for the wage-based limit: 50% of W-2 wages paid by the business. Here W-2 wages total 100,000, so 50% of wages equals 50,000.

Option B for the wage-based limit: 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property (UBIA). 25% of 100,000 is 25,000. UBIA of qualified property is given as 1,400,000, and 2.5% of that is 35,000. Summing these gives 60,000.

Thus, the wage/property-based limit is the greater of 50,000 and 60,000, which is 60,000. 
Now, the QBI deduction is the lesser of the two main limits:
- 20% of QBI = 70,000, and
- the wage/property-based cap = 60,000.
The smaller value is 60,000. 
Therefore, the QBI deduction is limited by the wage/property-based cap to 60,000, not the full 70,000. 
Now evaluate the answer options:
- Option "$54,000": This value is not supported by the calculations above; it doesn’t match either 20% of QBI (70,000) or the maximum cap of 60,000, and there’s no intermediate step yielding 54,000 in the given data.
- Option "$60,000": This matches the computed cap from the wage/property limit (the greater of 50,000 and 60,000) and, when compared to 70,000, the deduction is the lesser value, 60,000. 
- Option "$62,000": This would require a cap of 62,000, which isn’t produced by either 50% of wages (50,000) or 25% of wages plus 2.5% of UBIA (60,000), nor is it 20% of QBI (70,000). 
- Option "$70,000": This would be the full 20% of QBI, but it is not the correct limit once the wage/property cap is lower at 60,000.

In summary, the key step is comparing the basic 20% of QBI (70,000) to the wage/property-based cap (60,000) and taking the lesser, which yields 60,000. The structure relies on the 199A deduction rules for non-SSTB entities, where the cap can be driven by W-2 wages and UBIA of property, potentially limiting the deduction below 20% of QBI. The option that aligns with this result is the one reflecting 60,000 as the deductible amount, and the other options represent values that do not satisfy the cap interplay under the given numbers.

SP25-BL-BUS-A327-1377 Quiz 11

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