Qualified Business Income Deduction Simplified Computation

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2019

Department of the Treasury
Internal Revenue Service

Instructions for Form 8995
Qualified Business Income Deduction Simplified Computation

DRAFT AS OF
August 29, 2019

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. In
general, you’re allowed a deduction up to
20% of your net qualified business income
(QBI) 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, 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 define later),
• Your 2019 taxable income before your
QBI deduction is less than or equal to
$160,700 ($160,725 if married filing
separately; $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 are not
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 a S Corporations, and Form 1065, U.S.
Return of Partnership Income.
Cooperatives. Cooperatives are not
eligible for the deduction. Instead,
cooperatives must provide the necessary
information to their patrons on Form
1099-PATR or an attachment to help
Aug 28, 2019

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, the 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 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 are allowed a deduction for
Cat. No. 69662S

ordinary and necessary business
expenses under section 162. However,
trades or businesses conducted by
corporations and the performance of
services as an employee are not qualified
trades or businesses. 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 the taxpayer’s taxable
income is below the threshold or within the
phase-in range.
In general, to be engaged in a trade or
business under section 162, the activity
must be conducted with continuity and
regularity and the primary purpose for
engaging in the activity must be for
income or profit. 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, Notice 2019-07
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.
For more information on if you’re an
employee or an independent contractor,
see Pub. 15-A, Employer’s Supplemental
Tax Guide, and Pub. 1779, Independent
Contractor or Employee.
Services performed as an employee
excluded from qualified trades or business. 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”
on Form W-2, box 13, is checked, aren’t

QBI. If you were previously an employee
of a business and continue to provide
substantially the same services to that
business after you’re no longer treated as
an employee, there is a presumption that
you’re providing services as an employee
for purposes of section 199A for the
3-year period after ceasing to be an
employee. You may rebut this
presumption on notice from the IRS by
providing records such as contracts or
partnership agreements that corroborate
your status as a non-employee. See Pub.
15-A and Pub. 1779.

for purposes of section 199A. However,
you may choose to aggregate multiple
trades or businesses into a single trade or
business for purposes of figuring
deduction, if you meet the following
requirements.
1. You or a group of persons directly
or indirectly own 50% or more of each
trade or business for majority of the tax
year, including the last day of the tax year,
and all trades or businesses use the same
tax year end,
2. None of the trades or businesses
are an SSTB, and
3. The trades or businesses meet at
least two of the following factors.
a. They provide products, property, or
services that are the same or that are
customarily offered together.
b. They share facilities or share
significant centralized business elements
such as personnel, accounting, legal,
manufacturing, purchasing, human
resources, or information technology
resources.
c. They are operated in coordination
with, or reliance on, one or more of the
businesses in the aggregated group.

Determining Your
Qualified Business Income

If a relevant pass-through entity (RPE)
aggregates multiple trades or businesses,
you must attach the RPE’s aggregations to
your return. You may not separate the
trades or businesses aggregated by the
RPE, but you may add additional trades or
businesses to the aggregation, assuming
the rules above are met. If you choose to
aggregate multiple trades or businesses,
you must attach a statement similar to
Schedule B (Form 8995-A).
Your aggregations must be reported
consistently for all subsequent years,
unless there is a significant change in
facts and circumstances that disqualify the
aggregation. A statement similar to
Schedule B (Form 8995-A) must be
completed each year to show your trade
or business aggregations and must
include any aggregation of a RPE in which
you hold a direct or indirect interest.
Failure to disclose these aggregations
may cause them to be disaggregated.

Your QBI includes items of income, gain,
deduction, and loss from your trades or
businesses that are effectively connected
with the conduct of a trade or business in
the U.S. This includes income from
partnerships (other than PTPs), S
corporations, sole proprietorships, certain
estates and trusts that are included or
allowed in figuring your taxable income for
the year. To figure the total amount of QBI,
the taxpayer must consider all items that
are related to the trade or business. This
includes, but not limited to, charitable
contributions, unreimbursed partnership
expenses, business interest expense,
deductible part of self-employment tax,
self-employment health insurance
deduction, and contributions to qualified
retirement plans. QBI doesn’t include any
of the following.
• Items that aren’t properly included in
income.
• Income that is not effectively connected
with the conduct of a trade or business
within the U.S. (go to IRS.gov/ECI).
• Wage income (except “Statutory
Employees” where Form W-2, box 13 is
checked).
• Amounts received as reasonable
compensation from a S corporation.
• Amounts received as guaranteed
payments.
• Amounts received as payments
received by a partner for services other
than in a capacity as a partner.
• Items treated as capital gains or losses
under any provision of the Code.
• Dividends and dividend equivalents.
• Interest income not properly allocable
to a trade or business.
• Commodities transactions or foreign
currency gains or losses.
• Income, loss, or deductions from
notional principal contracts.
• Annuities (unless received in
connection with the trade or business).
• Qualified REIT dividends.
• Qualified PTP income.
See the QBI Flow Chart, later to figure if
an items of income, gain, deduction, or
losses is included in QBI.

Note. You must combine the QBI, W-2
wages, and UBIA of qualified property for
all aggregated trades or businesses, for
purposes of applying the W-2 wages and
UBIA of qualified property limits. However,
these limits will not apply until your
income, before the QBI deduction, is more
than the threshold. If your income is more
than the threshold, you must use Form
8995-A.

Note. Your QBI doesn’t include any
losses or deductions disallowed under the
basis, at-risk, passive loss, or section
461(l), excess business loss rules as
losses limited or suspended under these
rules aren’t included in determining your
taxable income for the year. These losses
are taken into account in the tax year they
are included in determining your taxable
income.

DRAFT AS OF
August 29, 2019

SSTBs excluded from your qualified
trades or businesses. A SSTB is
generally excluded from the definition of
qualified trade or business.
A SSTB is any trade or business
providing services in the fields:
• Health;
• Law;
• Accounting;
• Actuarial science;
• Performing arts;
• Consulting;
• Athletics;
• Financial services;
• Brokerage services;
• Investing and investment management;
• Trading or dealing in securities;
• Partnership interests;
• Commodities;
• Any trade or business if the principal
asset is the reputation or skill of one or
more of its employees or owners is
defined as any trade of business:
–Receiving fees, compensation, or
other income for endorsing products
or services;
–Licensing or receiving fees,
compensation or other income for the
use of taxpayer’s image, likeness,
name, signature, voice, trademark, or
any other symbols associated with the
individual’s identity; or
–Receiving fees, compensation, or
other income for appearing at an
event or on radio, television, or
another media format.
Exception 1: If your 2019 taxable
income before the QBI deduction is less
than or equal to $160,700 ($160,725 if
married filing separately; $321,400 if
married filing jointly), your SSTB is treated
as a qualified trade or business.
Exception 2: If your taxable income
before the QBI deduction is more than
$160,700 but not $210,700 ($160,725 and
$210,725 if married filing separately;
$321,400 and $421,400 if married filing
jointly), an applicable percentage of your
SSTB is treated as a qualified trade or
business.

Determining if items included on
Schedule K-1 are included in QBI. The
amounts reported on your Schedule K-1
as “QBI/Qualified PTP Items Subject to

Aggregation. If you’re engaged in more
than one trade or business, each trade or
business is a separate trade or business
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Instructions for Form 8995 (2019)

Taxpayer-Specific Determinations” from a
partnership, S corporation, estate, or trust
aren’t automatically included in your QBI.
To figure if the item of income, gain,
deduction, or loss is included in QBI you
must look to how it’s reported on your
federal income tax return. For example,
ordinary business income or loss is
generally included in QBI if it was used in
computing your taxable income, not
excluded, suspended, or disallowed under
any other section of the Code. Also, a
section 1231 gain or loss is only includible
in QBI if it is not capital gain or loss. See
the QBI Flow Chart, below to figure if an
item of income, gain, deduction, or loss is
included in QBI.

gain, deduction, and loss from a PTP. It
also may include gain or loss recognized
on the disposition of your partnership
interest that isn’t treated as a capital gain
or loss.
Note. PTP income generated by an SSTB
may be limited to the applicable
percentage, in which case you may need
to complete Part II of Schedule A (Form
8995-A). See the Instructions for Form
8995-A for more information.

for purposes of any other provisions of the
Code.

Line 11

Enter your taxable income figured before
any QBI deduction, computed as follows.
• Form 1040 or 1040-SR filers: Form
1040 or 1040-SR, line 8b, minus Form
1040 or 1040-SR, line 9.
• Form 1040-NR filers: Form 1040-NR,
line 35, minus Form 1040-NR, line 37.
• Form 1041 filers: Form 1041, line 20,
plus Form 1041, line 23.

DRAFT AS OF
August 29, 2019

Determining if information reported on
your Form 1099-PATR is included in
QBI. The amounts reported to you as
your share of a patronage dividends and
similar payments on Form 1099-PATR are
not automatically included in your QBI.
Payments may be included in QBI to the
extent they are (1) related to your trade or
business, (2) reported to you by the
cooperative as qualified income items on
an attachment to Form 1099–PATR, and
(3) not payments reported as from an
SSTB, unless your taxable income is
below the threshold, in which case
payments from SSTBs are included in
your QBI.
If you received qualified payments
reported to you on Form 1099–PATR from
a specified cooperative, you must reduce
your QBI by the patron reduction and use
Form 8995-A to compute your QBI
deduction.

Determining if items on Schedule C
(Form 1040 or 1040-SR) are included
in QBI. The net gain or loss reported on
your Schedule C (Form 1040 or 1040-SR)
isn’t automatically included in your QBI.
See the QBI Flow Chart, later to figure if
an item of income, gain, deduction, or loss
is included in QBI.

Determining Your
Qualified REIT Dividends
and Qualified PTP Income/
Loss

Qualified REIT dividends include any
dividends you received from a REIT held
for more than 45 days and for which the
payment is not obligated to someone else
and that isn’t a capital gain dividend or
qualified dividend, plus, your qualified
REIT dividends received from a regulated
investment company (RIC). This amount is
reported to you on Form 1099-DIV, line 5.
Qualified PTP income or loss includes
your share of qualified items of income,

Instructions for Form 8995 (2019)

Specific Instructions

Line 1

If you aggregated multiple trades or
businesses into a single business, enter
the aggregation group name. For
example, Aggregation 1, 2, 3, etc., instead
of entering the business name, and leave
line 1(b) blank.
Enter on line 1(b), the employer
identification number (EIN). If you don’t
have an EIN, enter your social security
number (SSN) or individual taxpayer
identification number (ITIN). If you’re the
sole owner of an LLC that is not treated as
a separate entity for federal income tax
purposes, enter the EIN given to the LLC.
If you don’t have an EIN, enter the owner's
name, and tax identification number.

Line 2

If you have more than four trades or
businesses, attach a statement with the
name and taxpayer identification number
of the trade(s) or business(es) and include
the income and loss from those trade(s) or
business(es) in the total for line 2.

Line 3

Include prior year qualified loss
carryforwards even if the loss was
unreported or the trade or business that
generated the loss is no longer in
existence.

Line 4

If you have a qualified business net loss
for the year, you don’t qualify for the QBI
deduction unless you have qualified REIT
dividends or PTP income. The loss will be
carried forward to next year. This
carryforward doesn’t affect the
deductibility of the loss for purposes of
any other provisions of the Internal
Revenue Code (Code).

Line 6

Enter as a negative number.

Line 8

Any negative amount will be carried
forward to the next year. This carryforward
does not affect the deductibility of the loss

-3-

Line 12

Enter the amount from your tax return as
follows.
• Form 1040 or 1040-SR, line 3a, plus
your net capital gain. If you’re not required
to file Schedule D (Form 1040 or
1040-SR), your net capital gain is the
amount reported on Form 1040 or
1040-SR, line 6. If you file Schedule D
(Form 1040 or 1040-SR), your net capital
gain is the smaller of Schedule D (Form
1040 or 1040-SR), line 15 or 16, unless
line 15 or 16 is zero or less, in which case
nothing is added to the qualified
dividends.
• Form 1040-NR, line 10b, plus your net
capital gain. If you’re not required to file
Schedule D (Form 1040 or 1040-SR), your
net capital gain is the amount reported on
Form 1040-NR, line 14. If you file
Schedule D (Form 1040 or 1040-SR), your
net capital gain is the smaller of
Schedule D (Form 1040 or 1040-SR),
line 15 or 16.
• Form 1041, line 2b(2), your qualified
dividends. For estates or trusts required to
file Schedule D (Form 1041), add the
qualified dividends to the smaller of
Schedule D (Form 1041), line 18a(2), or
line 19(2), unless either line 18a(2) or
19(2) is zero or less, in which case nothing
is added to the qualified dividends.

Line 15

Enter this amount on your Form 1040 or
1040-SR, line 10; Form 1040-NR, line 38;
or Form 1041, line 20.

Line 16

This is the amount to be carried forward to
the next year. This amount will offset QBI
in later tax years regardless of whether it’s
reported and the trade or business that
generated the loss is still in existence.
This carryforward does not affect the
deductibility of the loss for purposes of
any other provisions of the Code.

Line 17

If the amount is more than zero the loss
must be carried forward to next year.

QBI Flow Chart
Figure 1. Use this chart to determine if an item of income, gain, deduction or loss is included in QBI.
No

1. Is the item effectively connected with the conduct of a trade
or business within the U.S.?
Yes

DRAFT AS OF
August 29, 2019

2. Is the item from a trade or business (this includes general
business income and deduction items as well as deductible tax on
self-employment income, self-employed health insurance,
contributions to qualified retirement plans, charitable deductions,
unreimbursed partnership expenses, interest expenses for the
purchase of the partnership/S corporation interest/stock)?

No

Yes

3. If the item is from a pass-through entity (partnership, S
corporation, or trust) and the character of the item can’t be
determined at the entity level (section 1231 gains/losses, involuntary
conversions, interest from debt financed distributions, etc.), did you
determine the item to be a ordinary (not capital or personal)? Note:
If the item is not from a pass-through entity and it doesn’t require a
determination at the investor level, skip this test.

No

Yes
4. Is the item included in figuring your taxable income? Items
disallowed or limited, including the basis, at-risk, passive loss, or
excess business loss rules, are not included in QBI until the year
included in taxable income.

No

Yes
5. Is the item treated as a capital gain (loss) or dividend/dividend
equivalent?

Yes

No
6. Is the item interest income other than interest income allocable to
a trade or business? Note: Interest income from an investment of
working capital, reserves, or similar accounts is not allocable to a
trade or business.

Yes

No
Yes

7. Is the item an annuity, other than an annuity received in
connection with the trade or business?
No
8. Is the item a commodities transaction, foreign currency gain (loss)
described in section 954(c)(1)(C) or (D)?

Yes

No
Yes

9. Is the item from a notional principal contract under section
954(c)(1)(F)?
No
10. Is the item income (loss) from a qualified PTP? If “Yes,” it’s not
QBI, but it’s included in the REIT/PTP component of the QBI
computation. Include this item as a qualified item of income, gain,
deduction, or loss from a PTP.

Yes

No
Yes

11. Is the item W-2 wage income (except “Statutory Employees”
where Form W-2, box 13, is checked)?
No

This item is not
QBI.

See Figure 2, QBI Flow
Chart (continued).

-4-

Instructions for Form 8995 (2019)

QBI Flow Chart (continued)
Figure 2. Use this chart to help you determine if an item of income, gain, deduction or loss is included in QBI.
Yes

12. Is the item an amount received for reasonable compensation
from a S corporation?
No

Yes

DRAFT AS OF
August 29, 2019

13. Is the item an amount received as a guaranteed payment?
No

Yes

14. Is the item a payment received for services other than in a
capacity as a partner under section 707(a)?
No

No

15. Is the item related to a SSTB?
Yes

Yes

16. Is your taxable income at or below the threshold?
No

17. Is your taxable income above the threshold and within the
phase-in range? If “Yes,” this item is partially includible in QBI. Use
Form 8995-A, instead, and complete Schedule A (Form 8995-A).

Yes

No

Instructions for Form 8995 (2019)

-5-

This item is QBI.

This item is not
QBI.