How does the qualified business income (QBI) deduction apply to a pass-through entity? Qualified business income received by a pass-through entity is not eligible for the deduction. The entity will take the allowable deduction lowering their ordinary income to be reported to the partners, shareholders, or estate/trust. The entity will take the allowable deduction and report it on the Schedules K-1 as capital losses. Reported on the Schedule K-1 will be each partner, shareholder, or beneficiary's share of QBI items which will then be reported on their individual returns.