Barney is a managing LLC member (treated as a general partner) of BG LLC and is allocated qualified business income (QBI) from BG of $800,000. (BG is not a “specified service trade or business.”) Barney’s Schedule K–1 reflects a $300,000 share of BG’s W–2 wages and a $1,200,000 share of BG’s UBIA (unadjusted basis immediately after acquisition). Barney’s taxable income excluding capital gains is $600,000, and Barney has no income from REITs, publicly traded partnerships, or other qualified businesses. Refer to the QBI discussion in this chapter, the discussion in text Section 2-3, and the flowchart in Concept Summary 2.2.
a. Calculate Barney’s deduction under § 199A for qualified business income. Show your work, and show how any limitations are calculated.
b. How does Barney’s § 199A deduction affect his (1) cash flow, (2) basis in the LLC interest, and (3) capital account?