How to enter and calculate the qualified business income deduction (section 199A) in Lacerte

The qualified business income deduction (QBI) is intended to reduce the tax rate on qualified business income to a rate that is closer to the new corporate tax rate. There are two ways to calculate the QBI deduction: using Form 8995 or Form 8995-A. Don’t worry about which form your return needs to use. After you complete the required steps, ​Lacerte​ will generate the correct forms for your return. All the information you need to help the program calculate the QBI deduction for you is contained in this article.

First, follow the steps for each of the relevant schedules listed below for your client’s return.

Table of contents:

Schedule C Business and Schedule F Farm input - Screens 16 and 19:

1. Enter the income and expenses for the activities following your normal workflow.
   • Screen 16, Business Income (Sch C)
   • Screen 19, Farm Income (Sch F)
2. For each activity, scroll down to the Qualified Business Income Deduction section.
3. Check the Specified service trade or business (SSTB) box if applicable.
   • For more information about SSTBs, click here.
4. Enter any amounts related to cooperatives that may apply:
   • DPAD received from a specified cooperative
   • QBI allocable to qualified payments received from cooperative
   • W-2 wages allocable to qualified payments received from cooperative
5. Enter an Aggregate Tax Identification Number, if you are aggregating this activity with others on the return.
   • Use the same Aggregate Tax Identification Number for each income activity you wish to aggregate together.
   • Enter a Description of aggregated businesses and explanation of how they are allowed to be aggregated, if applicable. You only need to enter this explanation on one activity in the aggregation.
   • Enter Explanation of change in aggregation from prior year, if applicable.

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Schedule E Rental and Royalty input - Screen 18:

The program doesn’t automatically include most Schedule E rentals in QBI calculations due to the guidance in IRS Publication 535. However, the program will calculate QBI for Schedule E activities marked as land, self-rentals, real estate professionals, or as claiming safe harbor.

1. Enter the income and expenses on Screen 18, following your normal workflow.
2. Scroll down to the Qualified Business Income Deduction section.
3. Check the Specified service trade or business (SSTB) box if applicable.
   • For more information about SSTBs, click here.
4. Enter a number in Rental real estate enterprise number if claiming safe harbor.
   • This entry is required to generate the Section 199A Rental Real Estate Safe Harbor statement.
   • If you want to combine multiple Schedule E properties on one safe harbor statement, enter the same rental real estate enterprise number on each.
5. Enter any amounts related to specified cooperatives that may apply.
6. Enter an Aggregate Tax Identification Number, if you are aggregating this activity with others on the return.
   • Use the same Aggregate Tax Identification Number for each income activity you want aggregated together.
   • Enter a Description of aggregated businesses and explanation of how they are allowed to be aggregated, if applicable. You only need to enter this explanation on one activity in the aggregation.
   • Enter Explanation of change in aggregation from prior year, if applicable.

All rentals: You will need to enter a 1 in Business is a qualified trade or business: 1=yes, 2=no [O] to force the QBI calculation.

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Passthrough K-1s - Partnership, S-Corp, and Estate or Trust input - Screen 20:

1. Enter K-1 information for the applicable activity following your normal workflow.
2. Go to the QBI section for your activity:
   • Partnership K-1 - Line 20
   • S-Corp K-1 - Line 17
   • Estate or Trust K-1 - Line 14
3. Fill in the Section 199A grid with the information provided on your K-1.
   • If you don’t see the field you’re looking for, scroll to the right.

These input fields aren't overrides. The program assumes this activity qualifies when entries are made within this input section.

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Where to see your results

Once you’ve completed the steps in each of the relevant schedules for your client’s return, you’re done. The program will automatically generate Form 8995 or Form 8995-A based on what’s required for your client’s return. The QBI deduction will flow to line 10 of Form 1040 or 1040-SR, or line 38 of Form 1040-NR.

You’ll see Form 8995-A and accompanying schedules if:

• You have QBI, qualified REIT dividends, or qualified PTP income or loss; and
• Your 2019 taxable income before your QBI deduction is more than $160,700 ($160,725 if married filing separately or a married nonresident alien; $321,400 if married filing jointly); or
• You’re a patron in a specified agricultural or horticultural cooperative.

If you don't meet those requirements to file Form 8995-A, your deduction is figured on Form 8995 instead. Form 8995-A and its supporting schedules, like Schedule B Aggregation of Business Operations, won't be completed since they aren't required to file the return. See the IRS Instructions for Form 8995-A for more information.

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Other things you may see

Assets missing from QBI calculation

This occurs when an asset is past its depreciable life. Per Publication 535, such an asset is not included in the calculation of unadjusted basis immediately after acquisition (UBIA), which then feeds into QBI.

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QBI is being reduced by self-employment tax, health insurance, and retirement contribution deductions

Per Section 199A regulations, QBI is to be reduced by these amounts.

For QBI reported on a K-1, Lacerte assumes the entity issuing the K-1 has already reduced the QBI appropriately. If you feel QBI was misrepresented on your K-1, you can check the box Reduce QBI by self-employed health insurance deduction to reduce QBI as needed.

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Related topics

• QBI Reduction Health Care 2% + Shareholder S corp
• Sec 199A: QBI Deduction IRA vs SEP Contribution
• Form 1040 - How to claim QBI safe harbor on rental real estate per IRS Notice 2019-07 ?