If you had a Qualified Business Income (QBI) loss in a prior year, that loss doesn't disappear. Instead, it generally carries forward to future years and reduces the amount of qualified business income eligible for the Qualified Business Income Deduction (QBID) under Section 199A.
A prior year qualified business loss carryforward applies only to the calculation of your QBI deduction. It does not directly reduce your taxable income and isn't treated the same as a net operating loss (NOL).
The program will use your prior year QBI loss carryforward when calculating your current year Qualified Business Income Deduction.
Where Does the QBI Loss Carryforward Come From?
If your total qualified business income was negative in a prior year, the IRS requires that loss to be carried forward to the next tax year.
You can typically find the carryforward amount on your prior year's:
- Form 8995, Line 16, or
- Form 8995-A, if applicable
The amount is generally identified as:
"Qualified business net loss carryforward from the prior year."
Reviewing your prior-year return is the easiest way to determine whether you have a QBI loss carryforward that must be applied in the current year.
How a QBI Loss Carryforward Works
If your overall QBI was less than zero in a previous year:
- The loss carries forward to the next tax year.
- The carryforward reduces current-year qualified business income.
- The loss must be absorbed before a QBI deduction can be claimed.
Example
Prior Year
- Qualified Business Income: ($8,000)
Current Year
- Qualified Business Income: $20,000
- Prior-Year QBI Loss Carryforward: ($8,000)
- $20,000 − $8,000 = $12,000 adjusted QBI
Can a QBI Loss Carryforward Reduce Taxable Income?
A prior-year qualified business loss carryforward only affects the Qualified Business Income Deduction calculation.
It does not:
- Create a separate deduction
- Reduce adjusted gross income (AGI)
- Reduce taxable income directly
- Offset wages, interest, dividends, or other income
Why Doesn't My QBI Deduction Match 20% of My Business Income?
A prior-year QBI loss carryforward is one of the most common reasons your deduction may be lower than expected.
Other factors that can affect the deduction include:
- Self-employed health insurance deductions
- Self-employed retirement contributions
- One-half of self-employment tax
- Income limitations
- Specified service trade or business (SSTB) rules
- Wage and qualified property limitations