If taxable income is equal to or less than the appropriate threshold, then transfer the separate QBI for each activity to Step 7, as the taxpayer is not subject to the specified service trade or business or the wage and property limitations.
Determine if each activity with positive QBI is a specified service trade or business (SSTB).
For example, if a partnership owns a sports team, the partners' distributive shares of income from the partnership's athletics trade or business are not QBI because the activity is the performance of services in the field of athletics.
The next step involves calculating the allowable QBI, qualified W-2 wages, and qualified property basis for each separate SSTB identified in Step 4.
The SSTB limitation phasein is determined by the percentage that taxable income (before the QBI deduction) encroaches into the phasein range.
For example, a married couple filing jointly with an SSTB that has taxable income before the QBI deduction of $350,000 has encroached into the phasein range by 35% [($350,000-$315,000) /100,000, giving the couple an applicable percentage of 65%.
Now assume the couple above with an applicable percentage of 65% has an SSTB with QBI of $250,000.
The wage and property limitation must be applied to all non-SSTBs with positive QBI amounts identified in Step 2 and all SSTB tentative deductions that have not been phased out in Step 5.
Once the amount of W-2 wages is determined, the proposed regulations require that the wages be allocated to a QBI activity according to how the wage deductions are allocated in calculating QBI.
Assume a married couple filing jointly has QBI (non-SSTB activity) of $250,000, qualified W-2 wages in the activity of $20,000, and UBIA in qualified property of $5,000.
Exhibit 5 illustrates the same calculation for QBI from an activity that qualifies as an SSTB.
Then the tentative deductible amounts allowed (after the SSTB activity limitation and the wage and property limitation) from each QBI activity must be combined.