What is an Unadjusted basis limitation?
The unadjusted basis limitation is a Section 199A calculation method that restricts the pass-through deduction based on 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. This limitation applies to taxpayers with incomes above the specified thresholds and provides an alternative to the pure wage limitation for capital-intensive businesses. Qualified property includes tangible Depreciation and amortization assets used to produce qualified business income, held at year-end, and still within their depreciable period. The unadjusted basis represents the original cost, excluding depreciation adjustments, creating opportunities for equipment-intensive businesses to claim larger deductions than wage-based calculations alone would allow. Strategic property investment timing directly impacts available deduction capacity under this limitation formula.
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