Taylor owns a wide variety of commercial rental properties held in a single-member LLC. Her LLC reports rental income of $750,000. The LLC pays no W-2 wages; rather, it pays a management fee to an S corporation that Taylor controls. The management company pays W-2 wages, but reports no income (or loss). Taylor’s total unadjusted basis of the commercial rental property is $5,000,000 and her taxable income before the QBI deduction (and his modified taxable income) is $1,000,000. What is Taylor’s QBI deduction for 2019?
What will be an ideal response?
Because Taylor’s modified taxable income exceeds the $421,400 threshold in 2019, theW-2 Wages/Capital Investment Limit comes into play. Taylor’s QBI deduction is $125,000, computed as follows: ?
| 1. | 20% of qualified business income ($750,000 x 20%) | $150,000 |
| 2. | But no more than the greater of: | |
| -0% of W-2 wages ($-0- x 50%), or | $ -0- | |
| -25% of W-2 wages ($-0- x 25%) plus $ -0- | ||
| -2.5% of the unadjusted basis of qualified property ($5,000,000 x 2.5%) 125,000 | ?$ 125,000 | |
| And, no more than: | ||
| 3. | 20% of modified taxable income ($1,000,000 x 20%) | $ 200,000 |
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