What Is UBIA of Qualified Property? QBI Limit
Unadjusted basis immediately after acquisition — the property half of the QBI wage-and-property limitation, and what counts
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
UBIA stands for "unadjusted basis immediately after acquisition" — the original cost of a business's qualified property before any depreciation, including property expensed under section 179 or bonus depreciation. Above the qualified business income threshold, a non-SSTB owner's deduction is limited to the greater of 50 percent of W-2 wages or 25 percent of wages plus 2.5 percent of UBIA.
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Where does UBIA fit in the QBI computation?
Below the taxable-income threshold, the QBI deduction is 20 percent of qualified business income, full stop. Above it (and phasing in through the range), the deduction for each non-SSTB trade or business is limited to the greater of:
- 50 percent of the business's W-2 wages, or
- 25 percent of W-2 wages plus 2.5 percent of the UBIA of qualified property.
The second formula exists for businesses that own things but employ few people — rental real estate, self-storage, equipment-heavy sole proprietors, a solo trucker with a US$180,000 tractor. A business with no wages and US$2 million of qualified property has a limit of US$50,000 (2.5 percent) — enough to support a QBI deduction on US$250,000 of income. For SSTBs above the range, UBIA is irrelevant: their deduction is zero regardless (the SSTB vs non-SSTB guide).
What is qualified property?
| Counts as qualified property | Does not count |
|---|---|
| Depreciable tangible property (equipment, vehicles, furniture, buildings) | Land |
| Held by and available for use in the business at year-end | Property sold or disposed of before year-end |
| Used at some point during the year in producing QBI | Inventory |
| Whose depreciable period has not ended (see below) | Intangibles, including section 197 intangibles (not tangible property) |
| Including property fully expensed under section 179 or bonus — at full original cost | Property acquired within 60 days of year-end and disposed of within 120 days without being used at least 45 days (anti-abuse) |
UBIA is measured at original cost, unreduced by depreciation, section 179, or bonus. A US$60,000 van expensed in full under bonus depreciation in year one still contributes US$60,000 of UBIA for its entire depreciable period. This is the reason the trade guides on this site say "the vans' basis supports the limitation even after bonus depreciation takes them to zero."
How long does property stay in UBIA?
The "depreciable period" is the later of ten years from the date the property was placed in service, or the last day of the property's full MACRS recovery period (using the regular, non-ADS period, and ignoring any bonus depreciation or section 179). So:
- A 5-year vehicle counts for ten years (ten is longer than five).
- A 7-year machine counts for ten years.
- A 15-year land improvement counts for fifteen years.
- A 39-year building counts for thirty-nine years.
After the depreciable period ends, the property drops out of UBIA even if the business still uses it. A business whose equipment is all more than ten years old has no UBIA from it — one reason a long-running, property-heavy business with low payroll can find its QBI limit shrinking over time as assets age out.
Special cases
Like-kind exchanges and involuntary conversions: replacement property generally takes the relinquished property's UBIA and placed-in-service date for the carried-over basis, with any excess basis treated as new property. Partnerships and S corporations: UBIA is allocated to partners and shareholders (partners by their share of depreciation; shareholders by ownership) and reported on the K-1. Inherited property: UBIA is its fair market value at the date of death, and a new depreciable period starts for the heir. Property contributed to an entity: the entity generally takes the contributor's UBIA and placed-in-service date.
Worked example
A solo trucker (Schedule C, non-SSTB) has taxable income above the range, US$140,000 of QBI, no employees, and a tractor bought four years ago for US$175,000 (fully expensed under bonus depreciation) plus a US$45,000 trailer bought last year. UBIA: US$220,000 — both assets within their ten-year periods, at original cost despite zero adjusted basis. Wage-and-property limit: 50 percent of US$0 wages is zero; 25 percent of US$0 plus 2.5 percent of US$220,000 is US$5,500. His QBI deduction is capped at US$5,500 instead of US$28,000. If he elected S status and paid himself US$70,000 of W-2 wages, the first formula would yield a US$35,000 limit — but the salary and the employer payroll tax on it leave QBI, cutting QBI to roughly US$65,000 and the deduction to about US$13,000. That is still more than double US$5,500, which is why wages, not UBIA, usually rescue a one-person business above the range — and why the salary level is a calculation, not a default.
Frequently asked questions
What is UBIA?
The unadjusted basis immediately after acquisition of a business's qualified property — original cost before depreciation, section 179, or bonus depreciation. It feeds the property half of the QBI wage-and-property limitation.
Does fully depreciated property still count?
Yes, at its original cost, as long as it is still within its depreciable period (the later of ten years or its full MACRS recovery period) and still held and available for use in the business at year-end.
How long does property stay in UBIA?
Until the later of ten years after it was placed in service or the end of its regular MACRS recovery period. Five- and seven-year property counts for ten years; buildings count for their full 27.5 or 39 years.
Does land count as qualified property?
No. Land is not depreciable and is excluded. Only the building and depreciable improvements count.
Official sources
The IRS Section 199A FAQs state: “A taxpayer's UBIA of qualified property is its basis in the qualified property prior to any adjustments under section 1016(a)(2) or (3), any adjustments for tax credits you (or the RPE) claimed, or any adjustments for any portion of the basis which you have (or the RPE) elected to treat as an expense.” — Internal Revenue Service, Section 199A qualified business income deduction FAQs, https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs
The IRS states: “The QBI Component is subject to limitations, depending on the taxpayer's taxable income which may include the type of trade or business, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.” — Internal Revenue Service, Qualified business income deduction, https://www.irs.gov/newsroom/qualified-business-income-deduction
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk handles UBIA tracking on the fixed asset schedule, wage-and-property limitation modeling, S corporation wage planning for solo owners above the threshold, and K-1 UBIA reporting for partnerships and S corporations. See pricing or book a call.
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