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financeguru2
financeguru2, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 136
Experience:  Several years of complex tax experience
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I have a questions related to the Gross Domestic Production

Customer Question

I have a questions related to the Gross Domestic Production Deduction. I got 2 K1s that have the info on this deduction listed. One of the 2 K-1s I do not have basis but for simplicity the K1 shows the following:
Domestic Prod Gross Income=6,400,000
COGS Allocable to=1,800,000
Direct Cost=3,000,000
per instructions and my software since I have no basis the COGS allocable and Direct Cost and not part of the calculation in the current year and my software is allowing a deduction equal to 9% of 6,400,000 but then limited to 9% of my AGI. I am confussed that with no basis my allowed deduction is actually going up when the COGS allocable and Direct Cost are not part of Form 8903 and being carried forward. I hope this is making some sense.
Submitted: 1 year ago.
Category: Tax
Expert:  financeguru2 replied 1 year ago.

Hello. To answer your question, the correct calcualtion for the DPAD deduction is DPGR (6,400,000) less COGS allocable (1,800,000) less direct costs (3,000,000). Therefore, the qualified production activities income is $1,600,000. 9% of this is the DPAD deduction, or 144,000. Keep in mind that the 144,000 is also limited to 50% of W-2 production related wages from the activity. No part of the calculation should be referencing AGI, so it seems your software is performing the calculation incorrectly. Feel free to respond if you have any other questions on this issue. If this completely answers your question, please rate the answer, but do not do so until I have fully answered your question. Thank you.

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