Qualified trade or business

The term “qualified trade or business” means any trade or business other than—

(A) a specified service trade or business, or

(B) the trade or business of performing services as an employee.

The term “specified service trade or business” means any trade or business—

(A) which is described in section 1202(e)(3)(A) (applied without regard to the words “engineering, architecture,”) or which would be so described if the term “employees or owners” were substituted for “employees” therein, or

(B) which involves the performance of services that consist of 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)).

(A) In general If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $75,000 ($150,000 in the case of a joint return), then— (i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but (ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section.

(B) Applicable percentage 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— (i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to (ii) $75,000 ($150,000 in the case of a joint return).