How to Calculate QBI From a K-1: Thresholds, SSTBs, and Reporting

To calculate the qualified business income deduction from a Schedule K-1, pull three numbers off the Section 199A statement attached to your K-1 (your share of QBI, W-2 wages, and the unadjusted basis of qualified property), confirm which income tier you fall into, then apply 20% to QBI subject to the wage-and-property caps that kick in above the threshold. Section 199A was made permanent by the One Big Beautiful Bill Act signed in July 2025, so the mechanics below apply going forward rather than sunsetting.¹

Where the Section 199A Numbers Are on Your K-1

Partnership K-1 recipients (Form 1065) look at Box 20, Code Z.² S-corporation shareholders (Form 1120-S) look at Box 17, Code V.³ Don’t confuse the partnership Box 20 Code V, which reports unrelated business taxable income for tax-exempt partners, with the Code Z you actually need.

Neither box gives you one number. The code points to a supplemental statement that breaks out your share of qualified business income, the W-2 wages the business paid its employees, and the unadjusted basis immediately after acquisition (UBIA) of qualified property. UBIA is the original cost of the tangible, depreciable assets the business uses to produce income. If the entity runs more than one distinct trade or business, those figures should be reported separately by activity, because Section 199A requires a separate calculation for each one.

What to Strip Out Before You Calculate

Several categories on a K-1 look like business income but are excluded from QBI by statute. If the supplemental statement lumps any of these into the QBI line, back them out first:

Short-term and long-term capital gains and losses.¹
Investment-type interest not tied to the trade or business.
Guaranteed payments to a partner for services under Section 707(c).⁴
Reasonable compensation an S corporation pays you as an employee-shareholder.
Qualified REIT dividends and publicly traded partnership income, which get their own 20% deduction on a separate track.

Which Tier You Fall Into for 2026

Two things drive which version of the calculation applies: your taxable income before the QBI deduction, and whether the business is a specified service trade or business (SSTB). SSTBs are businesses whose value comes primarily from the reputation or skill of the people doing the work in health care, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, or investing and trading.⁵

For 2026, the taxable income thresholds are $201,750 for single filers and $403,500 for joint filers.⁶ At or below those numbers, you get the full 20% and the SSTB label doesn’t matter. Above them, a phase-in range extends $75,000 for single filers and $150,000 for joint filers, taking the upper limits to $276,750 (single) and $553,500 (joint). Above the upper limit, SSTB owners lose the deduction entirely and other businesses become fully subject to the wage-and-property caps.

Running the Numbers

Taxable Income at or Below the Threshold

Take your QBI from the K-1 and multiply by 20%. That is your tentative deduction for that business. Repeat for each K-1 and add the results. The total deduction cannot exceed 20% of your taxable income minus net capital gains.¹

Above the Threshold, Non-SSTB

Your deduction is the lesser of 20% of QBI, or the greater of two wage-and-property tests:

50% of your share of the business’s W-2 wages, or
25% of W-2 wages plus 2.5% of UBIA of qualified property.

Pick whichever test gives the higher figure, and that becomes your ceiling. This is where the wage and UBIA lines on the K-1 supplemental statement carry real weight. A business with no employees and no depreciable property produces zero on both tests, meaning no deduction at all once you’re past the phase-in range, even if the business isn’t an SSTB.

Inside the phase-in range, the wage-and-property limitation applies gradually. Compute how much your taxable income exceeds the threshold, divide by $75,000 (single) or $150,000 (joint), and use that ratio to blend the capped amount with the straight 20% figure.

Above the Threshold, SSTB

Within the phase-in range, only a shrinking share of the SSTB’s QBI, W-2 wages, and UBIA counts, with the includable percentage falling from 100% toward zero as your income climbs. Past the upper limit, the deduction for that SSTB is gone. Wages and property won’t rescue it.

Multiple K-1s and Losses

If one K-1 shows negative QBI, you can’t set it aside. Negative QBI must be netted against positive QBI from your other businesses, allocated proportionally by how much positive QBI each profitable business produced.⁷ When a loss knocks a profitable business’s QBI to zero or below, the W-2 wages and UBIA tied to that business also drop to zero for deduction purposes.

If total QBI across all your businesses is negative, the deduction is zero and the net loss carries forward. In the next year, the carryforward is treated as coming from a separate trade or business and reduces future QBI proportionally. It rolls indefinitely until absorbed. The W-2 wages and UBIA from the loss year do not carry forward.

One quirk affects long-time owners: losses suspended under the basis, at-risk, or passive activity rules from years before 2018 do not reduce QBI when they finally free up. Only losses arising in 2018 or later touch the QBI calculation as they flow through those limitation rules.

REIT Dividends and PTP Income on the Same K-1

Qualified REIT dividends and publicly traded partnership income also flow through Box 20, Code Z (partnership) or Box 17, Code V (S corporation), and the supplemental statement should list them separately.² They aren’t subject to the W-2 wage or UBIA caps; you just take 20% of the qualified amount. Negative PTP income and negative REIT dividends carry forward inside their own buckets. A PTP loss cannot offset trade-or-business QBI, and a business loss cannot offset qualified REIT dividends.

Aggregating Related Businesses

If you hold interests in several related businesses, aggregating them combines QBI, W-2 wages, and UBIA into one pool. That helps when one entity has wages but thin income and another is the reverse. To aggregate, all of the following must be true:⁸

The same person or group owns 50% or more of each business for most of the year, including the last day.
None of the businesses is an SSTB.
The businesses share at least two of these three: the same or commonly bundled products or services; shared facilities or centralized operations like accounting or IT; coordinated operations such as a supply chain relationship.

Aggregation is an annual election on Schedule B of Form 8995-A. Once made, you keep it consistent in future years unless the facts change. The entity can also aggregate at its level and pass through combined figures on the K-1, in which case the choice has been made for you.

Reporting the Deduction

Which form you file depends on your situation. If your taxable income is at or below $201,750 ($403,500 joint), you have no SSTB in the phase-in range, and you haven’t aggregated, use Form 8995, the simplified version.⁹ Everyone else uses Form 8995-A with its four schedules:⁷

Schedule A handles the SSTB phase-in reduction.
Schedule B reports aggregated businesses and must be completed before Part I.
Schedule C runs the loss netting and tracks carryforward amounts, required whenever any business has negative QBI or you have a prior carryforward.
Schedule D applies only to patrons of agricultural or horticultural cooperatives.

Complete Schedule C first if any business has losses, and Schedule B before Part I if you’re aggregating. Those schedules feed adjusted numbers into the main form. The final deduction goes on Line 13a of Form 1040.¹⁰ It reduces taxable income but is not an above-the-line adjustment, so it doesn’t lower your AGI or the many other calculations that key off AGI.

1
Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income
2
Internal Revenue Service. Partners Instructions for Schedule K-1 Form 1065
3
Internal Revenue Service. Shareholders Instructions for Schedule K-1 Form 1120-S
4
Internal Revenue Service. Qualified Business Income Deduction
5
eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses
6
Internal Revenue Service. Revenue Procedure 2025-32
7
Internal Revenue Service. Instructions for Form 8995-A
8
eCFR. 26 CFR 1.199A-4 – Aggregation
9
Internal Revenue Service. 2025 Instructions for Form 8995 Qualified Business Income Deduction Simplified Computation
10
Internal Revenue Service. 1040 Instructions