Schedule K-1 Box 17 Code V STMT and the QBI Deduction

Box 17 with Code V on your S-corporation Schedule K-1 flags Section 199A information: the entity-level figures you need to calculate your qualified business income (QBI) deduction on your personal return. The dollar amount printed next to Code V is not your deduction. The real numbers live on a statement attached to the K-1, and you carry them onto Form 8995 or Form 8995-A to work out the deduction yourself.¹

If you hold a partnership interest instead, the same information appears at Box 20, Code Z on the Form 1065 K-1. The boxes differ; the data and the math do not.²

What the Code V Statement Should Contain

The S-corporation cannot compute your deduction because the final number depends on your total taxable income, your filing status, and any QBI you have from other sources. What it can hand you are the entity-level inputs. Expect the following on the supplemental statement.

Qualified Business Income

The core figure is the entity’s net QBI: income, gains, deductions, and losses from the trade or business combined into a single number. Investment items like capital gains, dividends, and interest unrelated to the business are stripped out. Any reasonable compensation the S-corporation paid you as a shareholder-employee is also excluded. For partnership K-1s, guaranteed payments are excluded.³

W-2 Wages

The entity’s share of W-2 wages allocable to the qualified trade or business is reported separately. This figure feeds one of two limitation formulas that cap the deduction at higher incomes. It includes total wages subject to income tax withholding, elective deferrals, and deferred compensation paid by the business.

UBIA of Qualified Property

The unadjusted basis immediately after acquisition (UBIA) of qualified property is the original cost of tangible, depreciable property the business uses to produce QBI and still holds at year-end. It is the second variable in the limitation formula and exists mainly to give capital-intensive businesses with few employees an alternative path to the deduction.

SSTB Status

The statement must say whether the business is a specified service trade or business (SSTB): one whose value depends primarily on the personal skills or reputation of its owners or employees. The listed fields include health, law, accounting, actuarial science, financial services, consulting, athletics, performing arts, brokerage, and investment management. Above certain income levels, SSTB income loses the deduction entirely.

REIT Dividends and Publicly Traded Partnership Income

Code V can also carry your share of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income flowing through the entity. These qualify for the same deduction rate as QBI but are not subject to the W-2 wage and UBIA limitations. They should appear as separate line items on the statement.¹

Turning the Statement Into a Deduction

The QBI deduction started at 20% under the Tax Cuts and Jobs Act and was scheduled to expire after 2025. The One Big Beautiful Bill Act made it permanent and raised the rate to 23% beginning in 2026. Multiply your net QBI by 23%, then test the result against two limits.

The Taxable Income Cap

Your total QBI deduction cannot exceed 23% of your taxable income (figured before the QBI deduction) minus any net capital gains, including qualified dividends. This keeps the deduction from creating or enlarging a loss. If 23% of your QBI comes to $30,000 but 23% of taxable income minus net capital gains is $20,000, the deduction stops at $20,000.⁴

The W-2 Wage and UBIA Limit

Above the income thresholds in the next section, the deduction for each business is limited to the greater of:

50% of W-2 wages paid by that business, or
25% of W-2 wages plus 2.5% of the UBIA of qualified property

If 23% of your QBI exceeds whichever of those two is larger, the deduction is trimmed to the larger figure. A business with no employees and no depreciable property produces zero under both formulas, which means no deduction for owners above the threshold.⁵

2026 Income Thresholds

Below a threshold that adjusts yearly for inflation, you get the full 23% deduction with no W-2/UBIA limit and no SSTB restriction. For 2026, the approximate figures are:

Single filers: about $203,000
Married filing jointly: about $406,000

If your taxable income before the QBI deduction falls below these, skip the W-2/UBIA math and take 23% of your QBI, subject only to the taxable income cap above.

The One Big Beautiful Bill Act also widened the phase-in range starting in 2026. It now runs $75,000 for single filers and $150,000 for joint filers, up from $50,000 and $100,000. That means partial deduction territory of roughly $203,000 to $278,000 for singles and $406,000 to $556,000 for joint filers. Within that band, the W-2/UBIA limitation is blended in gradually. Check the 2026 instructions for Form 8995-A when they release for exact inflation-adjusted numbers.

How the SSTB Label Changes the Answer

Below the lower threshold, the SSTB box is irrelevant. Full deduction, whatever the business does.

Within the phase-in range, only a shrinking share of the SSTB’s QBI, W-2 wages, and UBIA counts. The share drops in proportion to how far your income has moved into the range. Sixty percent of the way through, only 40% of the SSTB’s figures enter the calculation. That reduced amount then runs through the standard W-2/UBIA limitation.

Above the upper threshold, the deduction for SSTB income disappears entirely. Non-SSTB income from other K-1s still qualifies, subject to the full W-2/UBIA limitation.

Form 8995 or Form 8995-A

Two forms exist for reporting the deduction. Which you file depends on income.

Form 8995 is the simplified version. You qualify if your taxable income before the QBI deduction is at or below the threshold (about $203,000 single, $406,000 joint for 2026) and you are not a patron of an agricultural or horticultural cooperative. The form asks only for your QBI amounts, REIT dividends, and PTP income. You do not need the W-2 wage or UBIA figures because those limits do not apply at your income level.³

Form 8995-A is required above the threshold or for more complex situations. It contains the worksheets for the W-2/UBIA limit and the SSTB phase-out. Owners of multiple qualifying trades or businesses who want to aggregate them for the limitation must complete Schedule B before Part I. Aggregation is only permitted where the same person or group owns at least 50% of each business, and no aggregated business can be an SSTB.⁴

Whichever form you use, the deduction lands on Form 1040, line 13a. It reduces taxable income, not adjusted gross income. AGI-linked calculations like student loan interest phase-outs and Medicare premium surcharges are not affected by your QBI deduction.⁴

When a K-1 Shows a Loss

Not every Code V statement carries positive QBI. Negative QBI from one business is netted against positive QBI from your other qualified businesses, with the loss allocated proportionally across those with positive QBI.

If the net result is still negative, you get no QBI deduction for the year, though qualified REIT dividends and PTP income are calculated separately and can still yield a deduction. The net loss carries forward to future years and reduces QBI then, even if the business that produced the loss no longer operates. On Form 8995-A, this netting and carryforward is handled on Schedule C. On Form 8995, prior-year loss carryforward goes on line 3. The IRS does not track carryforwards for you, so keep your own records year to year.⁴

The Lower Penalty Threshold for QBI Errors

Mistakes on the QBI deduction carry a higher penalty risk than most other return errors. The standard accuracy-related penalty is 20% of the tax underpayment, and it normally triggers when your understatement exceeds the greater of 10% of the correct tax or $5,000. For any return that claims the Section 199A deduction, Congress lowered that trigger: the understatement only needs to exceed the greater of 5% of the correct tax or $5,000.⁶

A missed SSTB phase-out or a miscalculated W-2/UBIA limit can produce an understatement large enough to cross that 5% line. The IRS can waive the penalty for reasonable cause, such as reliance on a competent tax professional or on the information your K-1 provided, but you carry the burden of showing good faith.⁷

1
IRS.gov. Shareholder’s Instructions for Schedule K-1 (Form 1120-S) (2025)
2
Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025)
3
Internal Revenue Service. Instructions for Form 8995 (2025)
4
Internal Revenue Service. Instructions for Form 8995-A (2025)
5
GovInfo. 26 CFR 1.199A-1
6
Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
7
Internal Revenue Service. Accuracy-Related Penalty