how to exclude capital gains from QBI calculation

Forum|Forum|4 years ago
March 3, 2022
3 replies
8 views

I have a client who sold his home and will have capital gains.

He also gets a k1 that has QBI.

I believe capital gains is excluded from calculating QBI.

How do you tie these into each other? Meaning what form would you use to exclude the capital gains

so it doesn't affect the QBI calculation?

Thank you

ProSeries Professional

This topic has been closed for replies.

Best answer by TaxGuyBill

The program is doing it it correctly. Capital gains lower the 'taxable income' threshold.

The deduction is the LOWER of (a) 20% of QBI or (b) 20% of 'taxable income' (after subtracting capital gains).

As for the reasoning behind it, that is how Congress wrote the law. See §199A(a).

https://www.law.cornell.edu/uscode/text/26/199A

J

jeffmcpa2010

Level 10

I am not sure without working through it how the house affects the QBI - doesn't seem like it should but until you run it through sometimes you don't know.

First you should check - Does your client qualify for the home sale exclusion of the first $250,000 of gain. (you fill that out on the home sale worksheet) ?

M

mickeyAuthor

Level 4

After reading all the replies from everyone, and further read the tax code, I came to the conclusion that

the government doesn't want you to double dip. It means if the taxable income is greater than the capital gains, you have zero to multiply by the 20%. My client's situation is just that, i.e. $700K in taxable income and $900K in capital gains.

Thank you all. I think we found our answer. Bummer but that's the law.

Just-Lisa-Now-