Jennifer's pass-through business has total qualified business income of $100,000 and combined REIT dividends/PTP income of $20,000. Since her taxable income of $150,000, including $10,000 of net capital gain is below the applicable threshold, what is her pass through deduction?

A) $20,000
B) $24,000
C) $28,000
D) $30,000

The pass-through deduction or the section 199A deduction as it is officially called is a reduction by 20 percent of your income tax provided by the new tax law set in place for the 2018 tax year. It is eligible for small business owners who run a pass-through business and whose tax income doesn't exceed $157,500 for singles and $315,000 for married couples.

To calculate the figure, you simply need to find 20% of your business profit. Jennifer has a taxable income of $150,000, which is less than the $157,500 limit to qualify for the pass-through deduction. So her pass through deduction becomes

20% of $100000 + $20,000

= 20/100 x $120,000

= $24,000

Note: Real Estate Investment Trust (REIT) dividend income and qualified Publicly Traded Partnership (PTP) income also are eligible for the pass-through deduction by law, hence the addition of the $20,000.

Parrain Parrain · Answer 2 · 2021-12-28T13:33:29+01:00

Based on Jennifer's taxable income and her other income, the pass though deduction is B. $24,000

If a single person's taxable income is below $157,500, then their pass through deduction is the lower amount of:

20% of Business income and Combined REIT income
20% of Taxable income less Net Capital Gain

This applies to Jennifer who has a taxable income of $150,000.

Pass through deduction is lower of:

= 20% x (100,000 + 20,000) = 20% x (150,000 - 10,000)

= $24,000 = $28,000

In conclusion, pass through deduction is $24,000

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