---
kind: "section"
citation: "26 U.S.C. § 199A"
title: "26"
title_heading: "Internal Revenue Code"
number: "199A"
heading: "Qualified business income"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/199A"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter B — Computation of Taxable Income"
  - "Part VI — Itemized Deductions for Individuals and Corporations"
---

# §199A. Qualified business income

- (a) **Allowance of deduction—** In the case of a [taxpayer](/usc/26/1313.md?p=b) other than a corporation, except as provided in [subsection (i)](#i), there shall be allowed as a deduction for any taxable year an amount equal to the lesser of—
  - (1) the combined [qualified business](/usc/26/1397C.md?p=d-1) income amount of the [taxpayer](/usc/26/1313.md?p=b), or
  - (2) an amount equal to 20 percent of the excess (if any) of—
    - (A) the [taxable income](/usc/26/63.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year, over
    - (B) the net capital gain (as defined in [section 1(h)](/usc/26/1.md?p=h)) of the [taxpayer](/usc/26/1313.md?p=b) for such taxable year.
- (b) **Combined qualified business income amount—** For purposes of this section—
  - (1) **In general—** The term “combined [qualified business](/usc/26/1397C.md?p=d-1) income amount” means, with respect to any taxable year, an amount equal to—
    - (A) the sum of the amounts determined under [paragraph (2)](#b-2) for each qualified [trade or business](/usc/26/1402.md?p=c) carried on by the [taxpayer](/usc/26/1313.md?p=b), plus
    - (B) 20 percent of the aggregate amount of the qualified REIT [dividends](/usc/26/316.md?p=a) and [qualified publicly traded partnership](/usc/26/851.md?p=h) income of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year.
  - (2) **Determination of deductible amount for each trade or business—** The amount determined under this paragraph with respect to any qualified [trade or business](/usc/26/1402.md?p=c) is the lesser of—
    - (A) 20 percent of the [taxpayer](/usc/26/1313.md?p=b)’s [qualified business](/usc/26/1397C.md?p=d-1) income with respect to the qualified [trade or business](/usc/26/1402.md?p=c), or
    - (B) the greater of—
      - (i) 50 percent of the W–2 [wages](/usc/26/1397.md?p=a-1) with respect to the qualified [trade or business](/usc/26/1402.md?p=c), or
      - (ii) the sum of 25 percent of the W–2 [wages](/usc/26/1397.md?p=a-1) with respect to the qualified [trade or business](/usc/26/1402.md?p=c), plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified [property](/usc/26/317.md?p=a).
  - (3) **Modifications to limit based on taxable income—**
    - (A) **Exception from limit—** In the case of any [taxpayer](/usc/26/1313.md?p=b) whose [taxable income](/usc/26/63.md?p=a) for the taxable year does not exceed the threshold amount, [paragraph (2)](#b-2) shall be applied without regard to [subparagraph (B)](#b-3-B).
    - (B) **Phase-in of limit for certain taxpayers—**
      - (i) **In general—** If—
        - (I) the [taxable income](/usc/26/63.md?p=a) of a [taxpayer](/usc/26/1313.md?p=b) for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $75,000 ($150,000 in the case of a [joint return](/usc/26/62.md?p=b-3-D)), and
        - (II) the amount determined under [paragraph (2)(B)](#b-2-B) (determined without regard to this subparagraph) with respect to any qualified [trade or business](/usc/26/1402.md?p=c) carried on by the [taxpayer](/usc/26/1313.md?p=b) is less than the amount determined under [paragraph (2)(A)](#b-2-A) with respect such [trade or business](/usc/26/1402.md?p=c),

      then [paragraph (2)](#b-2) shall be applied with respect to such [trade or business](/usc/26/1402.md?p=c) without regard to [subparagraph (B)](#b-3-B) thereof and by reducing the amount determined under [subparagraph (A)](#b-3-A) thereof by the amount determined under [clause (ii)](#b-3-B-ii).

      - (ii) **Amount of reduction—** The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as—
        - (I) the amount by which the [taxpayer](/usc/26/1313.md?p=b)’s [taxable income](/usc/26/63.md?p=a) for the taxable year exceeds the threshold amount, bears to
        - (II) $75,000 ($150,000 in the case of a [joint return](/usc/26/62.md?p=b-3-D)).
      - (iii) **Excess amount—** For purposes of [clause (ii)](#b-3-B-ii), the excess amount is the excess of—
        - (I) the amount determined under [paragraph (2)(A)](#b-2-A) (determined without regard to this paragraph), over
        - (II) the amount determined under [paragraph (2)(B)](#b-2-B) (determined without regard to this paragraph).
  - (4) **Wages, etc.**
    - (A) **In general—** The term “W–2 [wages](/usc/26/1397.md?p=a-1)” means, with respect to any person for any taxable year of such person, the amounts described in paragraphs [(3)](/usc/26/6051.md?p=a-3) and [(8)](/usc/26/6051.md?p=a-8) of section 6051(a) paid by such person with respect to employment of [employees](/usc/26/430.md?p=c-7-D-vi) by such person during the calendar year ending during such taxable year.
    - (B) **Limitation to wages attributable to qualified business income—** Such term shall not include any amount which is not properly allocable to [qualified business](/usc/26/1397C.md?p=d-1) income for purposes of [subsection (c)(1)](#c-1).
    - (C) **Return requirement—** Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the [due date](/usc/26/430.md?p=k-6-B) (including extensions) for such return.
  - (5) **Acquisitions, dispositions, and short taxable years—** The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the [taxpayer](/usc/26/1313.md?p=b) acquires, or disposes of, the major portion of a [trade or business](/usc/26/1402.md?p=c) or the major portion of a separate unit of a [trade or business](/usc/26/1402.md?p=c) during the taxable year.
  - (6) **Qualified property—** For purposes of this section:
    - (A) **In general—** The term “qualified [property](/usc/26/317.md?p=a)” means, with respect to any qualified [trade or business](/usc/26/1402.md?p=c) for a taxable year, tangible [property](/usc/26/317.md?p=a) of a character subject to the allowance for depreciation under [section 167](/usc/26/167.md)—
      - (i) which is held by, and available for use in, the qualified [trade or business](/usc/26/1402.md?p=c) at the close of the taxable year,
      - (ii) which is used at any point during the taxable year in the production of [qualified business](/usc/26/1397C.md?p=d-1) income, and
      - (iii) the depreciable period for which has not ended before the close of the taxable year.
    - (B) **Depreciable period—** The term “depreciable period” means, with respect to qualified [property](/usc/26/317.md?p=a) of a [taxpayer](/usc/26/1313.md?p=b), the period beginning on the date the [property](/usc/26/317.md?p=a) was first placed in service by the [taxpayer](/usc/26/1313.md?p=b) and ending on the later of—
      - (i) the date that is 10 years after such date, or
      - (ii) the last day of the last full year in the applicable recovery period that would apply to the [property](/usc/26/317.md?p=a) under [section 168](/usc/26/168.md) (determined without regard to [subsection (g)](#g) thereof).
  - (7) **Special rule with respect to income received from cooperatives—** In the case of any qualified [trade or business](/usc/26/1402.md?p=c) of a patron of a specified agricultural or horticultural cooperative, the amount determined under [paragraph (2)](#b-2) with respect to such [trade or business](/usc/26/1402.md?p=c) shall be reduced by the lesser of—
    - (A) 9 percent of so much of the [qualified business](/usc/26/1397C.md?p=d-1) income with respect to such [trade or business](/usc/26/1402.md?p=c) as is properly allocable to qualified payments received from such cooperative, or
    - (B) 50 percent of so much of the W–2 [wages](/usc/26/1397.md?p=a-1) with respect to such [trade or business](/usc/26/1402.md?p=c) as are so allocable.
- (c) **Qualified business income—** For purposes of this section—
  - (1) **In general—** The term “[qualified business](/usc/26/1397C.md?p=d-1) income” means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified [trade or business](/usc/26/1402.md?p=c) of the [taxpayer](/usc/26/1313.md?p=b). Such term shall not include any qualified REIT [dividends](/usc/26/316.md?p=a) or [qualified publicly traded partnership](/usc/26/851.md?p=h) income.
  - (2) **Carryover of losses—** If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the [taxpayer](/usc/26/1313.md?p=b) for any taxable year is less than zero, such amount shall be treated as a loss from a qualified [trade or business](/usc/26/1402.md?p=c) in the succeeding taxable year.
  - (3) **Qualified items of income, gain, deduction, and loss—** For purposes of this subsection—
    - (A) **In general—** The term “qualified items of income, gain, deduction, and loss” means items of income, gain, deduction, and loss to the extent such items are—
      - (i) effectively connected with the conduct of a [trade or business within the United States](/usc/26/864.md?p=b) (within the meaning of [section 864(c)](/usc/26/864.md?p=c), determined by substituting “qualified [trade or business](/usc/26/1402.md?p=c) (within the meaning of section 199A)” for “nonresident alien individual or a foreign corporation” or for “a[^1] foreign corporation” each place it appears), and
      - (ii) included or allowed in determining [taxable income](/usc/26/63.md?p=a) for the taxable year.
    - (B) **Exceptions—** The following items shall not be taken into account as a qualified item of income, gain, deduction, or loss:
      - (i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
      - (ii) Any [dividend](/usc/26/316.md?p=a), income equivalent to a [dividend](/usc/26/316.md?p=a), or payment in lieu of [dividends](/usc/26/316.md?p=a) described in [section 954(c)(1)(G)](/usc/26/954.md?p=c-1-G). Any amount described in [section 1385(a)(1)](/usc/26/1385.md?p=a-1) shall not be treated as described in this clause.
      - (iii) Any [interest](/usc/26/856.md?p=f-1) income other than [interest](/usc/26/856.md?p=f-1) income which is properly allocable to a [trade or business](/usc/26/1402.md?p=c).
      - (iv) Any item of gain or loss described in subparagraph [(C)](/usc/26/954.md?p=c-1-C) or [(D)](/usc/26/954.md?p=c-1-D) of section 954(c)(1) (applied by substituting “qualified [trade or business](/usc/26/1402.md?p=c)” for “controlled foreign corporation”).
      - (v) Any item of income, gain, deduction, or loss taken into account under [section 954(c)(1)(F)](/usc/26/954.md?p=c-1-F) (determined without regard to [clause (ii)](#c-3-B-ii) thereof and other than items attributable to notional principal [contracts](/usc/26/101.md?p=f-3-A) entered into in transactions qualifying under [section 1221(a)(7)](/usc/26/1221.md?p=a-7)).
      - (vi) Any amount received from an annuity which is not received in connection with the [trade or business](/usc/26/1402.md?p=c).
      - (vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses.
  - (4) **Treatment of reasonable compensation and guaranteed payments—** [Qualified business](/usc/26/1397C.md?p=d-1) income shall not include—
    - (A) reasonable [compensation](/usc/26/414.md?p=n-5-C-iii) paid to the [taxpayer](/usc/26/1313.md?p=b) by any qualified [trade or business](/usc/26/1402.md?p=c) of the [taxpayer](/usc/26/1313.md?p=b) for services rendered with respect to the [trade or business](/usc/26/1402.md?p=c),
    - (B) any guaranteed payment described in [section 707(c)](/usc/26/707.md?p=c) paid to a [partner](/usc/26/761.md?p=b) for services rendered with respect to the [trade or business](/usc/26/1402.md?p=c),
    - (C) to the extent provided in regulations, any payment described in [section 707(a)](/usc/26/707.md?p=a) to a [partner](/usc/26/761.md?p=b) for services rendered with respect to the [trade or business](/usc/26/1402.md?p=c), and
    - (D) any amount with respect to which a deduction is allowable to the [taxpayer](/usc/26/1313.md?p=b) under [section 224(a)](/usc/26/224.md?p=a) for the taxable year.
- (d) **Qualified trade or business—** For purposes of this section—
  - (1) **In general—** The term “qualified [trade or business](/usc/26/1402.md?p=c)” means any [trade or business](/usc/26/1402.md?p=c) other than—
    - (A) a specified service [trade or business](/usc/26/1402.md?p=c), or
    - (B) the [trade or business](/usc/26/1402.md?p=c) of performing services as an [employee](/usc/26/430.md?p=c-7-D-vi).
  - (2) **Specified service trade or business—** The term “specified service [trade or business](/usc/26/1402.md?p=c)” means any [trade or business](/usc/26/1402.md?p=c)—
    - (A) which is described in [section 1202(e)(3)(A)](/usc/26/1202.md?p=e-3-A) (applied without regard to the words “engineering, architecture,”) or which would be so described if the term “[employees](/usc/26/430.md?p=c-7-D-vi) or owners” were substituted for “[employees](/usc/26/430.md?p=c-7-D-vi)” therein, or
    - (B) which involves the performance of services that consist of investing and investment management, trading, or dealing in [securities](/usc/26/368.md?p=a-2-F-vii) (as defined in [section 475(c)(2)](/usc/26/475.md?p=c-2)), [partnership](/usc/26/761.md?p=a) [interests](/usc/26/856.md?p=f-1), or commodities (as defined in [section 475(e)(2)](/usc/26/475.md?p=e-2)).
  - (3) **Exception for specified service businesses based on taxpayer’s income—**
    - (A) **In general—** If, for any taxable year, the [taxable income](/usc/26/63.md?p=a) of any [taxpayer](/usc/26/1313.md?p=b) is less than the sum of the threshold amount plus $75,000 ($150,000 in the case of a [joint return](/usc/26/62.md?p=b-3-D)), then—
      - (i) any specified service [trade or business](/usc/26/1402.md?p=c) of the [taxpayer](/usc/26/1313.md?p=b) shall not fail to be treated as a qualified [trade or business](/usc/26/1402.md?p=c) due to [paragraph (1)(A)](#d-1-A), but
      - (ii) only the [applicable percentage](/usc/26/414.md?p=l-2-B) of qualified items of income, gain, deduction, or loss, and the W–2 [wages](/usc/26/1397.md?p=a-1) and the unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a), of the [taxpayer](/usc/26/1313.md?p=b) allocable to such specified service [trade or business](/usc/26/1402.md?p=c) shall be taken into account in computing the [qualified business](/usc/26/1397C.md?p=d-1) income, W–2 [wages](/usc/26/1397.md?p=a-1), and the unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year for purposes of applying this section.
    - (B) **Applicable percentage—** For purposes of [subparagraph (A)](#d-3-A), the term “[applicable percentage](/usc/26/414.md?p=l-2-B)” 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](/usc/26/63.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year in excess of the threshold amount, bears to
      - (ii) $75,000 ($150,000 in the case of a [joint return](/usc/26/62.md?p=b-3-D)).
- (e) **Other definitions—** For purposes of this section—
  - (1) **Taxable income—** Except as otherwise provided in [subsection (g)(2)(B)](#g-2-B), [taxable income](/usc/26/63.md?p=a) shall be computed without regard to [section 68](/usc/26/68.md) and without regard to any deduction allowable under this section.
  - (2) **Threshold amount—**
    - (A) **In general—** The term “threshold amount” means $157,500 (200 percent of such amount in the case of a [joint return](/usc/26/62.md?p=b-3-D)).
    - (B) **Inflation adjustment—** In the case of any taxable year beginning after 2018, the dollar amount in [subparagraph (A)](#e-2-A) shall be increased by an amount equal to—
      - (i) such dollar amount, multiplied by
      - (ii) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2017” for “calendar year 2016” in subparagraph (A)(ii) thereof.

      The amount of any increase under the preceding sentence shall be rounded as provided in [section 1(f)(7)](/usc/26/1.md?p=f-7).

  - (3) **Qualified REIT dividend—** The term “qualified REIT [dividend](/usc/26/316.md?p=a)” means any [dividend](/usc/26/316.md?p=a) from a [real estate investment trust](/usc/26/856.md?p=a) received during the taxable year which—
    - (A) is not a capital gain [dividend](/usc/26/316.md?p=a), as defined in [section 857(b)(3)](/usc/26/857.md?p=b-3), and
    - (B) is not qualified [dividend](/usc/26/316.md?p=a) income, as defined in [section 1(h)(11)](/usc/26/1.md?p=h-11).
  - (4) **Qualified publicly traded partnership income—** The term “[qualified publicly traded partnership](/usc/26/851.md?p=h) income” means, with respect to any qualified [trade or business](/usc/26/1402.md?p=c) of a [taxpayer](/usc/26/1313.md?p=b), the sum of—
    - (A) the net amount of such [taxpayer](/usc/26/1313.md?p=b)’s allocable share of each qualified item of income, gain, deduction, and loss (as defined in [subsection (c)(3)](#c-3) and determined after the application of [subsection (c)(4)](#c-4)) from a publicly traded [partnership](/usc/26/761.md?p=a) (as defined in [section 7704(a)](/usc/26/7704.md?p=a))[^2] which is not treated as a corporation under [section 7704(c)](/usc/26/7704.md?p=c), plus
    - (B) any gain recognized by such [taxpayer](/usc/26/1313.md?p=b) upon [disposition](/usc/26/424.md?p=c-1) of its [interest](/usc/26/856.md?p=f-1) in such [partnership](/usc/26/761.md?p=a) to the extent such gain is treated as an amount realized from the [sale or exchange](/usc/26/864.md?p=c-8-D) of [property](/usc/26/317.md?p=a) other than a [capital asset](/usc/26/1221.md?p=a) under [section 751(a)](/usc/26/751.md?p=a).
- (f) **Special rules—**
  - (1) **Application to partnerships and S corporations—**
    - (A) **In general—** In the case of a [partnership](/usc/26/761.md?p=a) or [S corporation](/usc/26/1361.md?p=a-1)—
      - (i) this section shall be applied at the [partner](/usc/26/761.md?p=b) or shareholder level,
      - (ii) each [partner](/usc/26/761.md?p=b) or shareholder shall take into account such person’s allocable share of each qualified item of income, gain, deduction, and loss, and
      - (iii) each [partner](/usc/26/761.md?p=b) or shareholder shall be treated for purposes of [subsection (b)](#b) as having W–2 [wages](/usc/26/1397.md?p=a-1) and unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) for the taxable year in an amount equal to such person’s allocable share of the W–2 [wages](/usc/26/1397.md?p=a-1) and the unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) of the [partnership](/usc/26/761.md?p=a) or [S corporation](/usc/26/1361.md?p=a-1) for the taxable year (as determined under regulations prescribed by the Secretary).

      For purposes of [clause (iii)](#f-1-A-iii), a [partner](/usc/26/761.md?p=b)’s or shareholder’s allocable share of W–2 [wages](/usc/26/1397.md?p=a-1) shall be determined in the same manner as the [partner](/usc/26/761.md?p=b)’s or shareholder’s allocable share of wage expenses. For purposes of such clause, [partner](/usc/26/761.md?p=b)’s or shareholder’s allocable share of the unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) shall be determined in the same manner as the [partner](/usc/26/761.md?p=b)’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an [S corporation](/usc/26/1361.md?p=a-1), an allocable share shall be the shareholder’s pro rata share of an item.

    - (B) **Application to trusts and estates—** Rules similar to the rules under [section 199(d)(1)(B)(i)](/usc/26/199.md) (as in effect on December 1, 2017) for the apportionment of W–2 [wages](/usc/26/1397.md?p=a-1) shall apply to the apportionment of W–2 [wages](/usc/26/1397.md?p=a-1) and the apportionment of unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) under this section.
    - (C) **Treatment of trades or business in Puerto Rico—**
      - (i) **In general—** In the case of any [taxpayer](/usc/26/1313.md?p=b) with [qualified business](/usc/26/1397C.md?p=d-1) income from sources within the commonwealth of Puerto Rico, if all such income is taxable under [section 1](/usc/26/1.md) for such taxable year, then for purposes of determining the [qualified business](/usc/26/1397C.md?p=d-1) income of such [taxpayer](/usc/26/1313.md?p=b) for such taxable year, the term “[United States](/usc/26/993.md?p=g)” shall include the Commonwealth of Puerto Rico.
      - (ii) **Special rule for applying limit—** In the case of any [taxpayer](/usc/26/1313.md?p=b) described in [clause (i)](#f-1-C-i), the [determination](/usc/26/1313.md?p=a) of W–2 [wages](/usc/26/1397.md?p=a-1) of such [taxpayer](/usc/26/1313.md?p=b) with respect to any qualified [trade or business](/usc/26/1402.md?p=c) conducted in Puerto Rico shall be made without regard to any exclusion under [section 3401(a)(8)](/usc/26/3401.md?p=a-8) for remuneration paid for services in Puerto Rico.
  - (2) **Coordination with minimum tax—** For purposes of determining alternative minimum [taxable income](/usc/26/63.md?p=a) under [section 55](/usc/26/55.md), [qualified business](/usc/26/1397C.md?p=d-1) income shall be determined without regard to any adjustments under sections [56](/usc/26/56.md) through 59.
  - (3) **Deduction limited to income taxes—** The deduction under [subsection (a)](#a) shall only be allowed for purposes of this chapter.
  - (4) **Regulations—** The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations—
    - (A) for requiring or restricting the allocation of items and [wages](/usc/26/1397.md?p=a-1) under this section and such reporting requirements as the Secretary determines appropriate, and
    - (B) for the application of this section in the case of tiered entities.
- (g) **Deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives—**
  - (1) **Allowance of deduction—**
    - (A) **In general—** In the case of a [taxpayer](/usc/26/1313.md?p=b) which is a specified agricultural or horticultural cooperative, there shall be allowed as a deduction an amount equal to 9 percent of the lesser of—
      - (i) the qualified production activities income of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year, or
      - (ii) the [taxable income](/usc/26/63.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year.
    - (B) **Limitation—**
      - (i) **In general—** The deduction allowable under [subparagraph (A)](#g-1-A) for any taxable year shall not exceed 50 percent of the W–2 [wages](/usc/26/1397.md?p=a-1) of the [taxpayer](/usc/26/1313.md?p=b) for the taxable year.
      - (ii) **W–2 wages—** For purposes of this subparagraph, the W–2 [wages](/usc/26/1397.md?p=a-1) of the [taxpayer](/usc/26/1313.md?p=b) shall be determined in the same manner as under [subsection (b)(4)](#b-4) (without regard to [subparagraph (B)](#g-1-B) thereof and after application of [subsection (b)(5)](#b-5)), except that such [wages](/usc/26/1397.md?p=a-1) shall not include any amount which is not properly allocable to domestic production [gross receipts](/usc/26/993.md?p=f) for purposes of [paragraph (3)(A)](#g-3-A).
    - (C) **Taxable income of cooperatives determined without regard to certain deductions—** For purposes of this subsection, the [taxable income](/usc/26/63.md?p=a) of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection [(b)](/usc/26/1382.md?p=b) or [(c)](/usc/26/1382.md?p=c) of section 1382 (relating to [patronage dividends](/usc/26/1388.md?p=a), [per-unit retain allocations](/usc/26/1388.md?p=f), and nonpatronage distributions).
  - (2) **Deduction allowed to patrons—**
    - (A) **In general—** In the case of any eligible [taxpayer](/usc/26/1313.md?p=b) who receives a qualified payment from a specified agricultural or horticultural cooperative, there shall be allowed as a deduction for the taxable year in which such payment is received an amount equal to the portion of the deduction allowed under [paragraph (1)](#g-1) to such cooperative which is—
      - (i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and
      - (ii) identified by such cooperative in a written notice mailed to such [taxpayer](/usc/26/1313.md?p=b) during the payment period described in [section 1382(d)](/usc/26/1382.md?p=d).
    - (B) **Limitation based on taxable income—** The deduction allowed to any [taxpayer](/usc/26/1313.md?p=b) under this paragraph shall not exceed the [taxable income](/usc/26/63.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) determined without regard to [section 68](/usc/26/68.md) or the deduction allowed under this paragraph and after taking into account any deduction allowed to the [taxpayer](/usc/26/1313.md?p=b) under [subsection (a)](#a) for the taxable year.
    - (C) **Cooperative denied deduction for portion of qualified payments—** The [taxable income](/usc/26/63.md?p=a) of a specified agricultural or horticultural cooperative shall not be reduced under [section 1382](/usc/26/1382.md) by reason of that portion of any qualified payment as does not exceed the deduction allowable under [subparagraph (A)](#g-2-A) with respect to such payment.
    - (D) **Eligible taxpayer—** For purposes of this paragraph, the term “eligible [taxpayer](/usc/26/1313.md?p=b)” means—
      - (i) a [taxpayer](/usc/26/1313.md?p=b) other than a corporation, or
      - (ii) a specified agricultural or horticultural cooperative.
    - (E) **Qualified payment—** For purposes of this section, the term “qualified payment” means, with respect to any eligible [taxpayer](/usc/26/1313.md?p=b), any amount which—
      - (i) is described in paragraph [(1)](/usc/26/1385.md?p=a-1) or [(3)](/usc/26/1385.md?p=a-3) of section 1385(a),
      - (ii) is received by such [taxpayer](/usc/26/1313.md?p=b) from a specified agricultural or horticultural cooperative, and
      - (iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under [paragraph (1)](#g-1).
  - (3) **Qualified production activities income—** For purposes of this subsection—
    - (A) **In general—** The term “qualified production activities income” for any taxable year means an amount equal to the excess (if any) of—
      - (i) the [taxpayer](/usc/26/1313.md?p=b)’s domestic production [gross receipts](/usc/26/993.md?p=f) for such taxable year, over
      - (ii) the sum of—
        - (I) the cost of goods sold that are allocable to such receipts, and
        - (II) other expenses, losses, or deductions (other than the deduction allowed under this subsection), which are properly allocable to such receipts.
    - (B) **Allocation method—** The Secretary shall prescribe rules for the proper allocation of items described in [subparagraph (A)](#g-3-A) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production [gross receipts](/usc/26/993.md?p=f).
    - (C) **Special rules for determining costs—**
      - (i) **In general—** For purposes of determining costs under [subclause (I)](#g-3-A-ii-I) of subparagraph (A)(ii), any item or service brought into the [United States](/usc/26/993.md?p=g) shall be treated as acquired by [purchase](/usc/26/1361.md?p=e-1-C), and its cost shall be treated as not less than its [value](/usc/26/851.md?p=c-4) immediately after it entered the [United States](/usc/26/993.md?p=g). A similar rule shall apply in determining the adjusted basis of leased or rented [property](/usc/26/317.md?p=a) where the lease or rental gives rise to domestic production [gross receipts](/usc/26/993.md?p=f).
      - (ii) **Exports for further manufacture—** In the case of any [property](/usc/26/317.md?p=a) described in [clause (i)](#g-3-C-i) that had been exported by the [taxpayer](/usc/26/1313.md?p=b) for further manufacture, the increase in cost or adjusted basis under [clause (i)](#g-3-C-i) shall not exceed the difference between the [value](/usc/26/851.md?p=c-4) of the [property](/usc/26/317.md?p=a) when exported and the [value](/usc/26/851.md?p=c-4) of the [property](/usc/26/317.md?p=a) when brought back into the [United States](/usc/26/993.md?p=g) after the further manufacture.
    - (D) **Domestic production gross receipts—**
      - (i) **In general—** The term “domestic production [gross receipts](/usc/26/993.md?p=f)” means the [gross receipts](/usc/26/993.md?p=f) of the [taxpayer](/usc/26/1313.md?p=b) which are derived from any lease, rental, license, sale, exchange, or other [disposition](/usc/26/424.md?p=c-1) of any agricultural or horticultural product which was manufactured, [produced](/usc/26/864.md?p=a), grown, or extracted by the [taxpayer](/usc/26/1313.md?p=b) (determined after the application of [paragraph (4)(B)](#g-4-B)) in whole or significant part within the [United States](/usc/26/993.md?p=g). Such term shall not include [gross receipts](/usc/26/993.md?p=f) of the [taxpayer](/usc/26/1313.md?p=b) which are derived from the lease, rental, license, sale, exchange, or other [disposition](/usc/26/424.md?p=c-1) of land.
      - (ii) **Related persons—**
        - (I) **In general—** The term “domestic production [gross receipts](/usc/26/993.md?p=f)” shall not include any [gross receipts](/usc/26/993.md?p=f) of the [taxpayer](/usc/26/1313.md?p=b) derived from [property](/usc/26/317.md?p=a) leased, licensed, or rented by the [taxpayer](/usc/26/1313.md?p=b) for use by any [related person](/usc/26/864.md?p=d-4).
        - (II) **Related person—** For purposes of [subclause (I)](#g-3-D-ii-I), a person shall be treated as related to another person if such persons are treated as a single employer under subsection [(a)](/usc/26/52.md?p=a) or [(b)](/usc/26/52.md?p=b) of section 52 or subsection [(m)](/usc/26/414.md?p=m) or [(o)](/usc/26/414.md?p=o) of section 414, except that [determinations](/usc/26/1313.md?p=a) under subsections [(a)](/usc/26/52.md?p=a) and [(b)](/usc/26/52.md?p=b) of section 52 shall be made without regard to [section 1563(b)](/usc/26/1563.md?p=b).
  - (4) **Specified agricultural or horticultural cooperative—** For purposes of this section—
    - (A) **In general—** The term “specified agricultural or horticultural cooperative” means an [organization](/usc/26/414.md?p=m-6-A) to which part I of subchapter T applies which is engaged—
      - (i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or
      - (ii) in the marketing of agricultural or horticultural products.
    - (B) **Application to marketing cooperatives—** A specified agricultural or horticultural cooperative described in [subparagraph (A)(ii)](#g-4-A-ii) shall be treated as having manufactured, [produced](/usc/26/864.md?p=a), grown, or extracted in whole or significant part any agricultural or horticultural product marketed by the specified agricultural or horticultural cooperative which its patrons have so manufactured, [produced](/usc/26/864.md?p=a), grown, or extracted.
  - (5) **Definitions and special rules—**
    - (A) **Special rule for affiliated groups—**
      - (i) **In general—** All members of an expanded [affiliated group](/usc/26/864.md?p=e-5-A) shall be treated as a single corporation for purposes of this subsection.
      - (ii) **Partnerships owned by expanded affiliated groups—** For purposes of [paragraph (3)(D)](#g-3-D), if all of the [interests](/usc/26/856.md?p=f-1) in the capital and profits of a [partnership](/usc/26/761.md?p=a) are owned by members of a single expanded [affiliated group](/usc/26/864.md?p=e-5-A) at all times during the taxable year of such [partnership](/usc/26/761.md?p=a), the [partnership](/usc/26/761.md?p=a) and all members of such group shall be treated as a single [taxpayer](/usc/26/1313.md?p=b) during such period.
      - (iii) **Expanded affiliated group—** For purposes of this subsection, the term “expanded [affiliated group](/usc/26/864.md?p=e-5-A)” means an [affiliated group](/usc/26/864.md?p=e-5-A) as defined in [section 1504(a)](/usc/26/1504.md?p=a), determined—
        - (I) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and
        - (II) without regard to paragraphs [(2)](/usc/26/1504.md?p=b-2) and [(4)](/usc/26/1504.md?p=b-4) of section 1504(b).
      - (iv) **Allocation of deduction—** Except as provided in regulations, the deduction under [paragraph (1)](#g-1) shall be allocated among the members of the expanded [affiliated group](/usc/26/864.md?p=e-5-A) in proportion to each member’s respective amount (if any) of qualified production activities income.
    - (B) **Special rule for cooperative partners—** In the case of a specified agricultural or horticultural cooperative which is a [partner](/usc/26/761.md?p=b) in a [partnership](/usc/26/761.md?p=a), rules similar to the rules of [subsection (f)(1)](#f-1) shall apply for purposes of this subsection.
    - (C) **Trade or business requirement—** This subsection shall be applied by only taking into account items which are attributable to the actual conduct of a [trade or business](/usc/26/1402.md?p=c).
    - (D) **Unrelated business taxable income—** For purposes of determining the tax imposed by [section 511](/usc/26/511.md), this section shall be applied by substituting “unrelated business [taxable income](/usc/26/63.md?p=a)” for “[taxable income](/usc/26/63.md?p=a)” each place it appears in this section (other than this subparagraph).
    - (E) **Special rule for cooperative with oil related qualified production activities income—**
      - (i) **In general—** If a specified agricultural or horticultural cooperative has oil related qualified production activities income for any taxable year, the amount otherwise allowable as a deduction under [paragraph (1)](#g-1) shall be reduced by 3 percent of the least of—
        - (I) the oil related qualified production activities income of the cooperative for the taxable year,
        - (II) the qualified production activities income of the cooperative for the taxable year, or
        - (III) [taxable income](/usc/26/63.md?p=a).
      - (ii) **Oil related qualified production activities income—** For purposes of this subparagraph, the term “oil related qualified production activities income” means for any taxable year the qualified production activities income which is attributable to the production, refining, processing, transportation, or distribution of oil, gas, or any primary product thereof (within the meaning of section 927(a)(2)(C), as in effect before its repeal) during such taxable year.
  - (6) **Regulations—** The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this subsection, including regulations which prevent more than 1 [taxpayer](/usc/26/1313.md?p=b) from being allowed a deduction under this subsection with respect to any activity described in [paragraph (3)(D)(i)](#g-3-D-i). Such regulations shall be based on the regulations applicable to cooperatives and their patrons under [section 199](/usc/26/199.md) (as in effect before its repeal).
- (h) **Anti-abuse rules—** The Secretary shall—
  - (1) apply rules similar to the rules under [section 179(d)(2)](/usc/26/179.md?p=d-2) in order to prevent the manipulation of the depreciable period of qualified [property](/usc/26/317.md?p=a) using transactions between related parties, and
  - (2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified [property](/usc/26/317.md?p=a) acquired in like-kind exchanges or involuntary conversions.
- (i) **Minimum deduction for active qualified business income—**
  - (1) **In general—** In the case of an applicable [taxpayer](/usc/26/1313.md?p=b) for any taxable year, the deduction allowed under [subsection (a)](#a) for the taxable year shall be equal to the greater of—
    - (A) the amount of such deduction determined without regard to this subsection, or
    - (B) $400.
  - (2) **Applicable taxpayer—** For purposes of this subsection—
    - (A) **In general—** The term “applicable [taxpayer](/usc/26/1313.md?p=b)” means, with respect to any taxable year, a [taxpayer](/usc/26/1313.md?p=b) whose aggregate [qualified business](/usc/26/1397C.md?p=d-1) income with respect to all active qualified trades or businesses of the [taxpayer](/usc/26/1313.md?p=b) for such taxable year is at least $1,000.
    - (B) **Active qualified trade or business—** The term “active qualified [trade or business](/usc/26/1402.md?p=c)” means, with respect to any [taxpayer](/usc/26/1313.md?p=b) for any taxable year, any qualified [trade or business](/usc/26/1402.md?p=c) of the [taxpayer](/usc/26/1313.md?p=b) in which the [taxpayer](/usc/26/1313.md?p=b) materially participates (within the meaning of [section 469(h)](/usc/26/469.md?p=h)).
  - (3) **Inflation adjustment—** In the case of any taxable year beginning after 2026, the $400 amount in [paragraph (1)(B)](#i-1-B) and the $1,000 amount in [paragraph (2)(A)](#i-2-A) shall each be increased by an amount equal to—
    - (A) such dollar amount, multiplied by
    - (B) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2025” for “calendar year 2016” in subparagraph (A)(ii) thereof.

    If any increase under this paragraph is not a multiple of $5, such increase shall be rounded to the nearest multiple of $5


## Footnotes

[^1]: So in original. The word “a” probably should not appear within the quoted text.
[^2]: So in original. Probably should be “7704(b))”.

## Source credit

(Added Pub. L. 115–97, title I, § 11011(a), Dec. 22, 2017, 131 Stat. 2063; amended Pub. L. 115–141, div. T, § 101(a)(1), (2)(A), (C), (b), Mar. 23, 2018, 132 Stat. 1151, 1155; Pub. L. 119–21, title VII, §§ 70105(a), (b), 70111(b), 70201(d), July 4, 2025, 139 Stat. 161, 165, 171.)

## Notes

### Inflation Adjusted Items for Certain Years

For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title.

### Editorial Notes

### References in Text

Section 199(d)(1)(B)(i) (as in effect on December 1, 2017), referred to in subsec. (f)(1)(B), means section 199(d)(1)(B)(i) of this title prior to repeal of section 199 by Pub. L. 115–97, title I, § 13305(a), Dec. 22, 2017, 131 Stat. 2126.

### Amendments

2025—Subsec. (a). Pub. L. 119–21, § 70105(b)(2), inserted “except as provided in subsection (i),” before “there” in introductory provisions.

Subsec. (b)(3)(B). Pub. L. 119–21, § 70105(a)(1), substituted “$75,000 ($150,000 in the case of a joint return)” for “$50,000 ($100,000 in the case of a joint return)” in two places.

Subsec. (c)(4)(D). Pub. L. 119–21, § 70201(d), added subpar. (D).

Subsec. (d)(3). Pub. L. 119–21, § 70105(a)(2), substituted “$75,000 ($150,000 in the case of a joint return)” for “$50,000 ($100,000 in the case of a joint return)” in two places.

Subsec. (e)(1). Pub. L. 119–21, § 70111(b)(1), inserted “without regard to section 68 and” after “shall be computed”.

Subsec. (g)(2)(B). Pub. L. 119–21, § 70111(b)(2), inserted “section 68 or” after “without regard to”.

Subsec. (i). Pub. L. 119–21, § 70105(b)(1), amended subsec. (i) generally. Prior to amendment, text read as follows: “This section shall not apply to taxable years beginning after December 31, 2025.”

2018—Subsec. (a). Pub. L. 115–141, § 101(b)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) provided equation for allowed deduction for any taxable year, which included special deduction for qualified cooperative dividends.

Subsec. (b)(7). Pub. L. 115–141, § 101(b)(3), added par. (7).

Subsec. (c)(1). Pub. L. 115–141, § 101(b)(2)(A), struck out “, qualified cooperative dividends,” after “qualified REIT dividends”.

Subsec. (c)(3)(B). Pub. L. 115–141, § 101(b)(2)(B)(i)(I), struck out “investment” before “items” in introductory provisions.

Subsec. (c)(3)(B)(ii). Pub. L. 115–141, § 101(b)(2)(B)(i)(II), inserted at end “Any amount described in section 1385(a)(1) shall not be treated as described in this clause.”

Subsec. (e)(1). Pub. L. 115–141, § 101(a)(2)(C), substituted “Except as otherwise provided in subsection (g)(2)(B), taxable income” for “Taxable income”.

Pub. L. 115–141, § 101(a)(2)(A), substituted “any deduction” for “the deduction”.

Subsec. (e)(4), (5). Pub. L. 115–141, § 101(b)(2)(B)(ii), redesignated par. (5) as (4) and struck out former par. (4) which defined “qualified cooperative dividend”.

Subsec. (g). Pub. L. 115–141, § 101(a)(1), amended subsec. (g) generally. Prior to amendment, subsec. (g) related to deduction allowed to specified agricultural or horticultural cooperatives.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70105(c), July 4, 2025, 139 Stat. 162, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2025.”

Amendment by section 70111(b) of Pub. L. 119–21 applicable to taxable years beginning after Dec. 31, 2025, see section 70111(c) of Pub. L. 119–21, set out as a note under section 68 of this title.

Amendment by section 70201(d) of Pub. L. 119–21 applicable to taxable years beginning after Dec. 31, 2024, see section 70201(j) of Pub. L. 119–21, set out as a note under section 45B of this title.

### Effective Date of 2018 Amendment

Amendment by Pub. L. 115–141 effective as if included in section 11011 of Pub. L. 115–97, see section 101(d) of Pub. L. 115–141, set out as a note under section 62 of this title.

### Effective Date

Section applicable to taxable years beginning after Dec. 31, 2017, see section 11011(e) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 62 of this title.