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Category: Adjustments

What is "Qualified Production Activities Income (QPAI)"?

Your allowable Domestic Production Activities Deduction (DPAD) generally cannot be more than 9% of your Qualified Production Activities Income (QPAI). If you do not have QPAI, you generally are not allowed a DPAD.

QPAI is the result (if any) of:

  1. Domestic production gross receipts (DPGR) MINUS
  2. The sum of:
    1. Cost of goods sold allocable to DPGR plus
    2. Other expenses, losses, or deductions allocable to DPGR.

What is DPGR (Domestic Production Gross Receipts)?

Generally, your DPGR is the sum of your gross receipts from the following activities:

  • Construction of real property that was performed in the United States in your construction trade or business.
  • Engineering or architectural services performed in the United States in your engineering or architectural services trade or business for the construction of real property in the United States.
  • Any lease, rental, license, sale, exchange, or other disposition of any of the following:
    • Qualifying production property you manufacture, produce, grow or extract in whole or in significant part in the United States
    • Any qualified film you produce, or
    • Electricity, natural gas, or potable water you produced in the United States.

Your DPGR does not include income derived from:

  • The sale of food and beverages you prepared at a retail establishment;
  • Property you leased, licensed, or rented for use by any related person;
  • The transmission or distribution of electricity, natural gas, or potable water; or
  • The lease, rental, license sale, exchange, or other disposition of land.

Gross receipts include the following:

  • Total sales (net of returns and allowances)
  • Amounts received for services, not including wages received as an employee
  • Income from incidental or outside sources (including sales of business property)

Gross receipts are generally not reduced by the cost of goods sold or adjusted basis of property (other than capital assets) sold or otherwise disposed of if such property is described in section 1221 (a)(1) through (5).