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beyond the year they are placed in service, you generally must recover their costs through de- preciation. For more information regarding de- preciation, see Pub. 946. Utilities. Business expenses for heat, lights, power, telephone service, and water and sew- erage are deductible. However, any part due to personal use isn’t deductible. Telephone. You can’t deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. However, charges for business long-dis- tance phone calls on that line, as well as the cost of a second line into your home used ex- clusively for business, are deductible business expenses. 12. Qualified Business Income Deduction Introduction This chapter covers the rules for determining the qualified business income (QBI) deduction. For tax years beginning after 2017, individ- ual taxpayers and certain trusts and estates may be entitled to a deduction of up to 20% of their QBI from a trade or business, including in- come from a pass-through entity, but not from a C corporation, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. The deduction is subject to multiple limitations, de- pending on the taxpayer’s taxable income, and may include the type of trade or business, the amount of W-2 wages paid by the trade or busi- ness, and the unadjusted basis immediately af- ter acquisition (UBIA) of qualified property held by the trade or business. The deduction can be taken in addition to the standard or itemized de- ductions. For more information, see section 199A, the Regulations section 1.199A, Rev. Proc. 2019–11, and Notice 2019–07. Topics This chapter discusses: • Taxpayers who may take a QBI deduction • How to figure the deduction • Coordination with other Code sections • Special rules Useful Items You may want to see: Form (and Instructions) Form 1040 U.S. Individual Income Tax Return Schedule K-1 (Form 1065) Partner’s Share of Income, Deductions, Credits, etc. Schedule K-1 (Form 1120S) Shareholder’s Share of Income, Deductions, Credits, etc. Form 1041 U.S. Income Tax Return for Estates and Trusts Schedule K-1 (Form 1041) Beneficiary’s Share of Income, Deductions, Credits, etc. See chapter 13 for information about getting publications and forms. Taxpayers Who May Take a Qualified Business Income Deduction Individuals, estates, and trusts may take a QBI deduction. S corporations and partnerships. S corpo- rations and partnerships are not eligible for the deduction. Instead, S corporations and partner- ships must pass through the necessary infor- mation to their shareholders or partners so they may figure their deduction. S corporations and partnerships must report each shareholder’s or partner’s share of the fol- lowing items for each qualified trade or busi- ness (or aggregated trade or business) on Schedule K-1, so the shareholder or partner may figure their deduction. • Section 199A QBI. • Section 199A W-2 wages. • Section 199A UBIA. • Section 199A Qualified REIT dividends. • Section 199A Qualified PTP income. • QBI allocable to qualified payments re- ceived from a specified cooperative. • Passed-through domestic production activ- ities deduction (DPAD) under section 199A(g) from a specified cooperative. • Whether each trade or business is a speci- fied service trade or business. • Disclosure of information for aggregated trades or businesses. For more information, see the Instructions for Form 1120S, U.S. Income Tax Return for an S Corporations, and Form 1065, U.S. Return of Partnership Income. Estates and trusts. To the extent that a gran- tor or another person is treated as owning all or part of a trust or estate, the owner will compute its QBI with respect to the owned portion of the trust as if that QBI had been received directly by the owner. Generally, in the case of a non-gran- tor trust or estate, the trust or estate may either deduct or pass through information to their ben- Form 1040 Schedule K-1 (Form 1065) Schedule K-1 (Form 1120S) Form 1041 Schedule K-1 (Form 1041) eficiaries so that the beneficiaries may figure their deduction. In determining the QBI deduc- tion or the amount that must be passed through to beneficiaries, the estate or trust allocates QBI items based on the relative proportion of the es- tate's or trust's distributable net income (DNI) for the tax year that is distributed or required to be distributed to the beneficiary or retained by the estate or trust. If the estate or trust has no DNI for the tax year, QBI, W-2 wages, and UBIA are allocated entirely to the estate or trust. Although estates and trusts may compute their own QBI deduction, they must reduce the amounts reported as QBI, W-2 wages, and UBIA to reflect the portion of those amounts that were allocated to beneficiaries. For more information, see the Instructions for Form 1041, U.S. Income Tax Return for Es- tates and Trusts. Agricultural and horticultural cooperatives. See the Instructions for Form 1120C, U.S. In- come Tax Return for Cooperative Associations, for rules applicable to agricultural and horticul- tural cooperatives. How To Figure the Deduction General Computation. In general, the amount of your QBI deduction equals your QBI Compo- nent plus your qualified REIT/PTP Component. However, the deduction is limited to the lesser of this amount or 20% of your taxable income minus your net capital gain. Use one of two worksheets to help you fig- ure your QBI deduction. 1. Use the Qualified Business Income De- duction—Simplified Worksheet in the In- structions for Form 1040 if: a. You have QBI, qualified REIT divi- dends, or qualified PTP income (de- fined later); b. Your 2018 taxable income before QBI deduction isn’t more than $157,500 ($315,000 if married filing jointly); and c. You aren’t a patron in a specified agri- cultural or horticultural cooperative. 2. Use Worksheet 12-A and its instructions in this Pub. 535 if: a. You have QBI, qualified REIT divi- dends, or qualified PTP income, and b. Your 2018 taxable income before QBI deduction is more than $157,500 ($315,000 if married filing jointly); or c. You’re a patron in a specified agricul- tural or horticultural cooperative. QBI Component. Your QBI Component is generally 20% of your QBI from your trades or businesses. However, if your taxable income (before the QBI deduction) exceeds the thresh- old your QBI for each of your trades or busi- nesses may be partially or fully reduced to the greater of 50% of wages from the qualified trade or business, or 25% of wages plus 2.5% of the unadjusted basis on acquisition of Chapter 12 Qualified Business Income Deduction Page 49