Sec. 11011. Deduction for qualified business income
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Part VI of subchapter B of chapter 1 is amended by adding at the end the following new section: In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the lesser of— the combined qualified business income amount of the taxpayer, or an amount equal to 23 percent of the excess (if any) of— the taxable income of the taxpayer for the taxable year, over any net capital gain (as defined in section 1(h)) of the taxpayer for the taxable year.
For purposes of this section— The term combined qualified business income amount means, with respect to any taxable year, an amount equal to— the sum of the amounts determined under paragraph
(2)for each qualified trade or business carried on by the taxpayer, plus 23 percent of the aggregate amount of the qualified REIT dividends and qualified cooperative dividends of the taxpayer for the taxable year. The amount determined under this paragraph with respect to any qualified trade or business is the lesser of— 23 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or 50 percent of the W–2 wages with respect to the qualified trade or business. In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph
(2)shall be applied without regard to subparagraph (B). If— the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business, then paragraph
(2)shall be applied with respect to such trade or business without regard to subparagraph
(B)thereof and by reducing the amount determined under subparagraph
(A)thereof by the amount determined under clause (ii). The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as— the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to $50,000 ($100,000 in the case of a joint return). For purposes of clause (ii), the excess amount is the excess of— the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over the amount determined under paragraph (2)(B) (determined without regard to this paragraph). The term W–2 wages means, with respect to any person for any taxable year of such person, the amounts described in paragraphs
(3)and
(8)of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1). Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return. The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year. For purposes of this section— The term qualified business income means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. If the net amount of qualified income, gain, deduction, and loss with respect to qualified trade or businesses of the taxpayer amount for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year. For purposes of this subsection— The term qualified items of income, gain, deduction, and loss means items of income, gain, deduction, and loss to the extent such items are— effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting qualified trade or business (within the meaning of section 199A) for nonresident alien individual or a foreign corporation or for a foreign corporation each place it appears), and included or allowed in determining taxable income for the taxable year. The following investment items shall not be taken into account as a qualified item of income, gain, deduction, or loss: Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss. Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). Any interest income other than interest income which is properly allocable to a trade or business. Any item of gain or loss described in subparagraph
(C)or
(D)of section 954(c)(1) (applied by substituting qualified trade or business for controlled foreign corporation ). Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause
(ii)thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)). Any amount received from an annuity which is not received in connection with the trade or business. Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses. Qualified business income shall not include— reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business, any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business. For purposes of this section— The term qualified trade or business means any trade or business other than a specified service trade or business or the trade or business of performing services as an employee. The term specified service trade or business means any trade or business involving the performance of services described in section 1202(e)(3)(A), including investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then— the exception under paragraph
(1)shall not apply to specified service trades or businesses of the taxpayer for the taxable year, but only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages, of the taxpayer allocable to such specified service trades or businesses shall be taken into account in computing the qualified business income and W–2 wages of the taxpayer for the taxable year for purposes of applying this section. For purposes of subparagraph (A), the term applicable percentage means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of— the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to $50,000 ($100,000 in the case of a joint return). For purposes of this section— Taxable income shall be computed without regard to the deduction allowable under this section. The term threshold amount means $250,000 (200 percent of such amount in the case of a joint return). In the case of any taxable year beginning after 2018, the dollar amount in paragraph
(1)shall be increased by an amount equal to— such dollar amount, multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. The term qualified REIT dividend means any dividend from a real estate investment trust received during the taxable year which— is not a capital gain dividend, as defined in section 857(b)(3), and is not qualified dividend income, as defined in section 1(h)(11). The term qualified cooperative dividend means any patronage dividend (as defined in section 1388(a)), any per-unit retain allocation (as defined in section 1388(f)), and any qualified written notice of allocation (as defined in section 1388(c)), or any similar amount received from an organization described in subparagraph (B)(ii), which— is includible in gross income, and is received from— an organization or corporation described in section 501(c)(12) or 1381(a), or an organization which is governed under this title by the rules applicable to cooperatives under this title before the enactment of subchapter T. In the case of a partnership or S corporation— this section shall be applied at the partner or shareholder level, each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and each partner or shareholder shall be treated for purposes of subsection
(b)as having W–2 wages for the taxable year in an amount equal to such person's allocable share of the W–2 wages of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary). For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item. This section shall not apply to any trust or estate. In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term United States shall include the Commonwealth of Puerto Rico. In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico. For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59. The deduction under subsection
(a)shall only be allowed for purposes of this chapter. The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations— for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and for the application of this section in the case of tiered entities. In the case of any taxable year of a specified agricultural or horticultural cooperative beginning after December 31, 2018, there shall be allowed a deduction in an amount equal to the lesser of— 23 percent of the cooperative's taxable income for the taxable year, or 50 percent of the W–2 wages of the cooperative with respect to its trade or business. For purposes of this subsection, the term specified agricultural or horticultural cooperative means an organization to which part I of subchapter T applies which is engaged in— the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, the marketing of agricultural or horticultural products which its patrons have so manufactured, produced, grown, or extracted, or the provision of supplies, equipment, or services to farmers or to organizations described in subparagraph
(A)or (B). This section shall not apply to taxable years beginning after December 31, 2025. . Section 199A(b)(1)(B), as added by subsection (a), is amended by striking and qualified cooperative dividends and inserting , qualified cooperative dividends, and qualified publicly traded partnership income . Section 199A(e), as added by subsection (a), is amended by adding at the end the following new paragraph: The term qualified publicly traded partnership income means, with respect to any qualified trade or business of a taxpayer, the sum of— the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) which is not treated as a corporation under section 7704(c), plus any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a). . Section 199A(c)(1), as added by subsection (a), is amended by adding at the end the following new sentence: Such term shall not include any qualified publicly traded partnership income. . Section 6662(d)(1) is amended by inserting at the end the following new subparagraph: In the case of any taxpayer who claims the deduction allowed under section 199A for the taxable year, subparagraph
(A)shall be applied by substituting 5 percent for 10 percent . . Section 170(b)(2)(D) is amended by striking , and at the end of clause (iv), by redesignating clause
(v)as clause (vi), and by inserting after clause
(iv)the following new clause: section 199A, and . Section 172(d) is amended by adding at the end the following new paragraph: The deduction under section 199A shall not be allowed. . Section 246(b)(1) is amended by inserting 199A, before 243(a)(1) . Section 613(a) is amended by inserting and without the deduction under section 199A after and without the deduction under section 199 . Section 613A(d)(1) is amended by redesignating subparagraphs (C), (D), and
(E)as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B), the following new subparagraph: any deduction allowable under section 199A, . The table of sections for part VI of subchapter B of chapter 1 is amended by inserting at the end the following new item: Sec. 199A. Qualified business income. . The amendments made by this section shall apply to taxable years beginning after December 31, 2017.