Qualified Business Loss Carryforward - Sec. 199A

A loss from a qualified trade or business will mean that a taxpayer’s net loss generated in Year 1 will be carried forward and reduce the subsequent year’s qualified business income deduction.

For example, Taxpayer has qualified business income of $10,000 from business A and a qualified business loss of $30,000 from business B in Year 1. Taxpayer is not permitted a deduction for Year 1 and has a carryover qualified business loss of $20,000 to Year 2.

In Year 2, Taxpayer has qualified business income of $10,000 from business A and qualified business income of $30,000 from business B. For a total of $40,000.

To determine the deduction for Year 2, Taxpayer multiplies Year 2 income of $40,000 by 20 percent which is $8,000, and reduces it by $4,000, which is 20% of the carryover loss of $20,000 from Year 1.

Ignoring application of other potential limitations and deductible amounts, Taxpayer would be entitled to a Year 2 qualified business income deduction of $4,000.