This article and video tutorials will cover the basics of the Section 199A deduction and how to complete the IRS Form 8995 or IRS Form 8995-A. View our YouTube videos for sample fact patterns and step-by-step instructions on completing the forms for various scenarios.  

The Qualified Business Income (QBI) deduction was added to the U.S. tax code in 2017 as part of the Tax Cuts and Jobs Act (TCJA) and provides tax relief for pass-through entities (partnerships and S corporations) and sole proprietors filing Schedule C with Form 1040.  

For additional guidance on other scenarios covering Form 8995, see our other pages & videos here:

Understanding the QBI Deduction for REIT Dividends

The QBI deduction allows qualifying individuals to deduct up to 20% of their net qualified business income (QBI) from certain pass-through entities and sole proprietorships. 

The overall QBI deduction comprises two components:

  1. QBI Component under Section 199A(b)(1)(B). The deduction equals 20% of QBI from domestic businesses that are partnerships, S corporations & sole proprietorships. Potentially subject to limitations based upon the taxable income of the taxpayer, type of business, amounts of W-2 wages & UBIA of property
  2. REIT/PTP Component under Section 199A(b)(1)(B). A taxpayer separately computes the REIT and PTP QBI deduction from the first QBI component. The deduction equals 20% of the qualified REIT dividends and qualified PTP income. There are no limitations on W-2 or UBIA amounts.  

What is a Qualified REIT Dividend?

The term “qualified REIT dividends” means any dividend from a Real Estate Investment Trust (REIT) received during the tax year, which is NOT a capital gain dividend under Section 857(b)(3) and is NOT qualified dividend income under Section 1(h)(11).

Completing IRS Form 8995 or Form 8995-A

To claim the QBI deduction on your tax return, you must complete either IRS Form 8995 or 8995-A.  

The taxpayer uses Form 8995 (Simplified Computation) if taxable income before the QBI deduction is below the relevant thresholds for the filing year (for the 2022 tax year, the thresholds were $340,100 for Married Filing Joint (MFJ) and $170,050 for single filers). If the taxable income before the QBI deduction exceeds those thresholds, the taxpayer must use Form 8995-A instead of Form 8995. 

The Form 8995-A may also require the taxpayer to attach additional schedules.

  • Schedule A (Specified Service Trades or Businesses). Calculate limitations applicable to SSTBs. 
  • Schedule B (Aggregation of Business Operations). Under certain conditions, taxpayers can elect to aggregate two or more businesses. 
  • Schedule C (Loss Netting and Carryforwards). Used for carryforwards & to apportion QBI losses against QBI profits from other qualified businesses. 
  • Schedule D (Patrons of Agricultural or Horticultural Cooperations). 

Here’s a step-by-step guide on how to fill out Form 8995 for REIT dividend income. 

Step 1: Basic Information

Step 2: Complete Line 1

  • Enter the name & TIN for each of your qualified trades or businesses on a separate line item. You can leave this section blank if you only have qualified REIT dividend income eligible for the deduction.   

Step 3: Enter your total QBI on Line 2 

  • In this section, you’ll enter the QBI amounts from businesses listed on Lines 1 and any carryforwards from prior years. Calculate the qualified business income component by multiplying line 4 by 20%.   

Step 4: Enter Qualified REIT & PTP Income

  • Enter your total qualified REIT dividends and PTP income on lines 6 and 7. Calculate the QBI amount by multiplying Line 8 by 20%.    

Step 5: Report and Calculate Your Overall QBI Deduction

  • The overall limitation provides that the deduction cannot exceed 20% of the taxpayer’s taxable income reduced by net capital gains.
  • Calculate the total amount of qualified business income deduction (Line 15) and report on your tax return.  

Step 6: Report the Net QBI Deduction on Form 1040

  • An individual taxpayer reports their QBI deduction on page 1 of Form 1040, line 13 for the Qualified Business Income deduction.  

Conclusion

The Section 199A deduction provides tremendous benefits to owners of eligible businesses and investors in publicly traded partnerships (PTP) and Real Estate Investment Trusts (REIT). What’s also beneficial is these amounts are calculated and reported separately from the other qualified trades or businesses. 

Taxpayers should always consult with a qualified tax professional to determine their eligibility. A professional can also help ensure you maximize your QBI deduction while complying with tax laws and regulations.