diff --git a/changelog.d/fix-qbid-section-199a-net-capital-gain.fixed.md b/changelog.d/fix-qbid-section-199a-net-capital-gain.fixed.md
new file mode 100644
index 00000000000..895c590e496
--- /dev/null
+++ b/changelog.d/fix-qbid-section-199a-net-capital-gain.fixed.md
@@ -0,0 +1 @@
+The qualified business income deduction's income limit subtracts net capital gain plus qualified dividends as Form 8995 line 12 defines them (keeping section 1250 and 28-percent rate gain, unaffected by a Form 4952 election, and counting only the head's and spouse's gains), rather than adjusted net capital gain.
diff --git a/policyengine_us/tests/core/test_section_199a_net_capital_gain_invariants.py b/policyengine_us/tests/core/test_section_199a_net_capital_gain_invariants.py
new file mode 100644
index 00000000000..3425312fbf1
--- /dev/null
+++ b/policyengine_us/tests/core/test_section_199a_net_capital_gain_invariants.py
@@ -0,0 +1,216 @@
+"""Invariants for the net capital gain in the QBI deduction's income limit.
+
+26 USC 199A(a)(2)(B) subtracts net capital gain from taxable income, and
+Treas. Reg. 1.199A-1(b)(3) defines it as "net capital gain as defined in
+section 1222(11) plus any qualified dividend income". Form 8995 line 12 takes
+it from Schedule D lines 15 and 16 and Form 1040 line 3a, none of which a
+Form 4952 investment income election reduces. A tax unit dependent's gains are
+on the dependent's own return.
+
+The YAML cases pin specific returns. This test checks, for random gains,
+losses, distributions, dividends, section 1250 and collectibles gain and
+elections, in batches of tax units with and without spouses and dependents,
+run as vectorized simulations with the dependents' amounts as drawn, with
+them set to zero, and with no election:
+
+1. Oracle: `section_199a_net_capital_gain` equals Schedule D's
+   max(0, min(line 15, line 16)) plus nonnegative qualified dividends, summed
+   from the head's and spouse's inputs in numpy.
+2. Election invariance: the election changes neither the gain nor the QBI
+   deduction.
+3. Dependent invariance: dependents' gains, losses and dividends change
+   neither the gain nor the QBI deduction.
+4. Cap and floor: the deduction is never negative and never above 20% of
+   taxable income less the gain, or the 199A(i) minimum when larger.
+"""
+
+import numpy as np
+from hypothesis import HealthCheck, given, settings
+from hypothesis import strategies as st
+
+from policyengine_us import Simulation
+
+TOLERANCE = 0.01  # dollars
+GAIN_INPUTS = [
+    "long_term_capital_gains",
+    "short_term_capital_gains",
+    "non_sch_d_capital_gains",
+    "qualified_dividend_income",
+    "long_term_capital_gains_on_collectibles",
+]
+HEAD = dict(
+    is_tax_unit_head=True, is_tax_unit_spouse=False, is_tax_unit_dependent=False
+)
+SPOUSE = dict(
+    is_tax_unit_head=False, is_tax_unit_spouse=True, is_tax_unit_dependent=False
+)
+DEPENDENT = dict(
+    is_tax_unit_head=False, is_tax_unit_spouse=False, is_tax_unit_dependent=True
+)
+
+
+def _maybe(strategy):
+    return st.one_of(st.just(0.0), strategy)
+
+
+signed = st.integers(-60_000, 120_000).map(float)
+positive = st.integers(1, 60_000).map(float)
+
+
+@st.composite
+def person_amounts(draw):
+    long_term = draw(_maybe(signed))
+    return {
+        "long_term_capital_gains": long_term,
+        "short_term_capital_gains": draw(_maybe(signed)),
+        "non_sch_d_capital_gains": draw(_maybe(st.integers(1, 5_000).map(float))),
+        "qualified_dividend_income": draw(_maybe(positive)),
+        # Collectibles gain is part of the long-term gain.
+        "long_term_capital_gains_on_collectibles": (
+            draw(_maybe(st.integers(0, int(max(0, long_term))).map(float)))
+        ),
+        "qbid_amount": draw(_maybe(positive)),
+        "qualified_business_income": draw(_maybe(positive)),
+    }
+
+
+@st.composite
+def tax_units(draw):
+    kind = draw(st.sampled_from(["single", "joint", "joint_dependent"]))
+    return {
+        "head": draw(person_amounts()),
+        "spouse": draw(person_amounts()) if kind != "single" else None,
+        "dependent": draw(person_amounts()) if kind == "joint_dependent" else None,
+        "taxable_income_less_qbid": draw(st.integers(0, 600_000).map(float)),
+        "unrecaptured_section_1250_gain": draw(_maybe(positive)),
+        "election": draw(_maybe(st.integers(1, 80_000).map(float))),
+    }
+
+
+def _situation(units, year, *, zero_dependents=False, zero_election=False):
+    people, tax_units_, households, marital_units = {}, {}, {}, {}
+    for i, u in enumerate(units):
+        members = []
+        for role, flags in (("head", HEAD), ("spouse", SPOUSE)):
+            if u[role] is not None:
+                name = f"{role}_{i}"
+                people[name] = {"age": 45, **flags, **u[role]}
+                members.append(name)
+        marital_units[f"couple_{i}"] = {"members": list(members)}
+        if u["dependent"] is not None:
+            name = f"dependent_{i}"
+            amounts = dict(u["dependent"])
+            if zero_dependents:
+                amounts.update({k: 0.0 for k in GAIN_INPUTS})
+            people[name] = {"age": 16, **DEPENDENT, **amounts}
+            members.append(name)
+            marital_units[f"single_{i}"] = {"members": [name]}
+        tax_units_[f"tax_unit_{i}"] = {
+            "members": members,
+            "taxable_income_less_qbid": u["taxable_income_less_qbid"],
+            "unrecaptured_section_1250_gain": u["unrecaptured_section_1250_gain"],
+        }
+        # The election is the head's input.
+        people[f"head_{i}"]["investment_income_elected_form_4952"] = (
+            0.0 if zero_election else u["election"]
+        )
+        households[f"household_{i}"] = {"members": members, "state_code": "TX"}
+
+    def by_year(values):
+        return {k: (v if k == "members" else {year: v}) for k, v in values.items()}
+
+    return {
+        "people": {k: by_year(v) for k, v in people.items()},
+        "tax_units": {k: by_year(v) for k, v in tax_units_.items()},
+        "households": {k: by_year(v) for k, v in households.items()},
+        "marital_units": {k: by_year(v) for k, v in marital_units.items()},
+    }
+
+
+def _run(units, year, **kwargs):
+    sim = Simulation(situation=_situation(units, year, **kwargs))
+    out = {
+        name: np.asarray(sim.calculate(name, year), dtype=float)
+        for name in [
+            "section_199a_net_capital_gain",
+            "qualified_business_income_deduction",
+            "taxable_income_less_qbid",
+            *GAIN_INPUTS,
+        ]
+    }
+    out["filer"] = ~np.asarray(sim.calculate("is_tax_unit_dependent", year), bool)
+    out["unit"] = sim.populations["tax_unit"].members_entity_id
+    out["p"] = sim.tax_benefit_system.parameters(year).gov.irs.deductions.qbi
+    return out
+
+
+def _filer_sum(run, name):
+    n = len(run["section_199a_net_capital_gain"])
+    return np.bincount(run["unit"], weights=run[name] * run["filer"], minlength=n)
+
+
+def _check(units, year):
+    run = _run(units, year)
+    gain = run["section_199a_net_capital_gain"]
+    deduction = run["qualified_business_income_deduction"]
+
+    # 1. Oracle: Schedule D lines 15 and 16, and Form 1040 line 3a.
+    line_15 = _filer_sum(run, "long_term_capital_gains") + _filer_sum(
+        run, "non_sch_d_capital_gains"
+    )
+    line_16 = line_15 + _filer_sum(run, "short_term_capital_gains")
+    dividends = np.maximum(0, _filer_sum(run, "qualified_dividend_income"))
+    oracle = np.maximum(0, np.minimum(line_15, line_16)) + dividends
+    np.testing.assert_allclose(gain, oracle, atol=TOLERANCE)
+
+    # 2. Election invariance.
+    no_election = _run(units, year, zero_election=True)
+    for name in [
+        "section_199a_net_capital_gain",
+        "qualified_business_income_deduction",
+    ]:
+        np.testing.assert_allclose(
+            run[name], no_election[name], atol=TOLERANCE, err_msg=name
+        )
+
+    # 3. Dependent invariance.
+    no_dependents = _run(units, year, zero_dependents=True)
+    for name in [
+        "section_199a_net_capital_gain",
+        "qualified_business_income_deduction",
+    ]:
+        np.testing.assert_allclose(
+            run[name], no_dependents[name], atol=TOLERANCE, err_msg=name
+        )
+
+    # 4. Cap and floor.
+    p = run["p"]
+    cap = p.max.rate * np.maximum(0, run["taxable_income_less_qbid"] - gain)
+    ceiling = cap
+    if p.deduction_floor.in_effect:
+        # The largest minimum the scale gives.
+        ceiling = np.maximum(cap, p.deduction_floor.amount.calc(np.array([1e12]))[0])
+    assert (deduction >= -TOLERANCE).all()
+    assert (deduction <= ceiling + TOLERANCE).all()
+
+
+# Each example is one vectorized batch of tax units.
+SETTINGS = dict(
+    max_examples=3,
+    deadline=None,
+    derandomize=True,
+    suppress_health_check=[HealthCheck.too_slow, HealthCheck.data_too_large],
+)
+
+
+@settings(**SETTINGS)
+@given(st.lists(tax_units(), min_size=10, max_size=40))
+def test_section_199a_gain_and_cap_2025(units):
+    _check(units, 2025)
+
+
+@settings(**SETTINGS)
+@given(st.lists(tax_units(), min_size=10, max_size=40))
+def test_section_199a_gain_and_cap_2026(units):
+    # 2026 adds the 199A(i) minimum deduction.
+    _check(units, 2026)
diff --git a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/qualified_business_income_deduction.yaml b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/qualified_business_income_deduction.yaml
index 4feef0daf86..cb7e7713312 100644
--- a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/qualified_business_income_deduction.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/qualified_business_income_deduction.yaml
@@ -3,7 +3,7 @@
   input:
     qbid_amount: 10_000
     taxable_income_less_qbid: 30_000
-    adjusted_net_capital_gain: 2_000
+    section_199a_net_capital_gain: 2_000
   output:
     qualified_business_income_deduction: 5_600
 
@@ -12,7 +12,7 @@
   input:
     qbid_amount: 3_000
     taxable_income_less_qbid: 30_000
-    adjusted_net_capital_gain: 2_000
+    section_199a_net_capital_gain: 2_000
   output:
     qualified_business_income_deduction: 3_000
 
@@ -21,7 +21,7 @@
   input:
     qbid_amount: 10_000
     taxable_income_less_qbid: 30_000
-    adjusted_net_capital_gain: 32_000
+    section_199a_net_capital_gain: 32_000
   output:
     qualified_business_income_deduction: 0
 
@@ -31,7 +31,7 @@
   input:
     qbid_amount: 200
     taxable_income_less_qbid: 600
-    adjusted_net_capital_gain: 0
+    section_199a_net_capital_gain: 0
     qualified_business_income: 1_000
   output:
     qualified_business_income_deduction: 400
@@ -42,7 +42,7 @@
   input:
     qbid_amount: 200
     taxable_income_less_qbid: 0
-    adjusted_net_capital_gain: 0
+    section_199a_net_capital_gain: 0
     qualified_business_income: 999
   output:
     qualified_business_income_deduction: 0
@@ -53,7 +53,7 @@
   input:
     qbid_amount: 2_000
     taxable_income_less_qbid: 20_000
-    adjusted_net_capital_gain: 0
+    section_199a_net_capital_gain: 0
     qualified_business_income: 1_000
   output:
     qualified_business_income_deduction: 2_000
@@ -74,7 +74,7 @@
       tax_unit:
         members: [person1]
         taxable_income_less_qbid: 600
-        adjusted_net_capital_gain: 0
+        section_199a_net_capital_gain: 0
     families:
       family:
         members: [person1]
@@ -159,3 +159,151 @@
     # Below the $197,300 single threshold so the SSTB phaseout does not apply.
     # SSTB QBI component = 0.20 * $30,000 = $6,000.
     qualified_business_income_deduction: 6_000
+
+# 26 U.S.C. 199A(a)(2) subtracts "the net capital gain (as defined in section
+# 1(h))" from taxable income, which is net capital gain plus qualified
+# dividends (2025 Form 8995 line 12), not adjusted net capital gain. Unrecaptured
+# section 1250 gain and 28-percent rate gain stay in the subtraction.
+- name: Income limitation binds with unrecaptured section 1250 gain
+  period: 2025
+  input:
+    qbid_amount: 20_000
+    taxable_income_less_qbid: 100_000
+    long_term_capital_gains: 40_000
+    unrecaptured_section_1250_gain: 30_000
+  output:
+    # Form 8995 line 10: QBI deduction before the income limitation = $20,000.
+    # Line 11: taxable income before the QBI deduction = $100,000.
+    # Line 12: net capital gain plus qualified dividends = $40,000.
+    # Line 13: $100,000 - $40,000 = $60,000.
+    # Line 14: income limitation = 20% x $60,000 = $12,000.
+    # Line 15: smaller of line 10 or line 14 = $12,000.
+    # (Subtracting adjusted net capital gain, $10,000, would allow $18,000.)
+    qualified_business_income_deduction: 12_000
+
+- name: Income limitation binds with 28-percent rate gain
+  period: 2025
+  input:
+    qbid_amount: 30_000
+    taxable_income_less_qbid: 150_000
+    long_term_capital_gains: 50_000
+    long_term_capital_gains_on_collectibles: 50_000
+    qualified_dividend_income: 10_000
+  output:
+    # Form 8995 line 10 = $30,000; line 11 = $150,000.
+    # Line 12 = $10,000 (Form 1040 line 3a) + $50,000 (Schedule D) = $60,000.
+    # Line 13 = $90,000. Line 14 = 20% x $90,000 = $18,000.
+    # Line 15 = smaller of $30,000 or $18,000 = $18,000.
+    # (Subtracting adjusted net capital gain, $10,000, would allow $28,000.)
+    qualified_business_income_deduction: 18_000
+
+- name: Income limitation ignores the Form 4952 investment income election
+  period: 2025
+  input:
+    qbid_amount: 20_000
+    taxable_income_less_qbid: 100_000
+    long_term_capital_gains: 50_000
+    qualified_dividend_income: 10_000
+    investment_income_elected_form_4952: 20_000
+  output:
+    # Form 8995 line 12 = $10,000 (line 3a, not reduced by Form 4952 line 4g)
+    # + $50,000 (smaller of Schedule D lines 15 and 16) = $60,000.
+    # Line 13 = $40,000. Line 14 = 20% x $40,000 = $8,000. Line 15 = $8,000.
+    qualified_business_income_deduction: 8_000
+
+- name: Self-employed seller of depreciated rental property
+  absolute_error_margin: 0.01
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 45
+        self_employment_income: 80_000
+        long_term_capital_gains: 50_000
+        # Zero out QBI deductions so QBI equals self-employment income.
+        self_employment_tax_ald_person: 0
+        self_employed_health_insurance_ald_person: 0
+        self_employed_pension_contribution_ald_person: 0
+        is_tax_unit_head: true
+    tax_units:
+      tax_unit:
+        members: [person1]
+        # All of the long-term gain is unrecaptured section 1250 gain.
+        unrecaptured_section_1250_gain: 50_000
+    families:
+      family:
+        members: [person1]
+    spm_units:
+      spm_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: TX
+  output:
+    # AGI = $80,000 + $50,000 = $130,000; 2025 single standard deduction
+    # $15,750.
+    # Form 8995 line 1c/2 = $80,000 of QBI; line 4 = $80,000;
+    # line 5 = 20% x $80,000 = $16,000; line 10 = $16,000.
+    # Line 11 = $130,000 - $15,750 = $114,250 (below the $197,300 threshold).
+    taxable_income_less_qbid: 114_250
+    # Line 12 = $50,000 of net capital gain (Schedule D lines 15 and 16).
+    section_199a_net_capital_gain: 50_000
+    # Line 13 = $64,250. Line 14 = 20% x $64,250 = $12,850.
+    # Line 15 = smaller of $16,000 or $12,850 = $12,850.
+    # (Adjusted net capital gain is $0, which would leave line 10's $16,000.)
+    adjusted_net_capital_gain: 0
+    qualified_business_income_deduction: 12_850
+    # Form 1040 line 15 = $114,250 - $12,850 = $101,400.
+    taxable_income: 101_400
+
+# A tax unit dependent's gains and dividends are on the dependent's own
+# return, so they neither shrink nor widen the filer's income limitation.
+- name: Dependent gains do not reduce the parent's QBI deduction
+  period: 2025
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        qbid_amount: 20_000
+        long_term_capital_gains: 40_000
+        short_term_capital_gains: -10_000
+        qualified_dividend_income: 5_000
+      child:
+        is_tax_unit_dependent: true
+        qbid_amount: 0
+        long_term_capital_gains: 200_000
+        qualified_dividend_income: 50_000
+    tax_units:
+      unit:
+        members: [head, child]
+        taxable_income_less_qbid: 100_000
+  output:
+    # Parent: smaller of Schedule D lines 15 (40,000) and 16 (30,000), plus
+    # 5,000 of qualified dividends = 35,000.
+    section_199a_net_capital_gain: 35_000
+    # 20% x (100,000 - 35,000) = 13,000, below the 20,000 QBI amount.
+    qualified_business_income_deduction: 13_000
+
+- name: Dependent losses do not increase the parent's QBI deduction
+  period: 2025
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        qbid_amount: 20_000
+        long_term_capital_gains: 40_000
+        qualified_dividend_income: 5_000
+      child:
+        is_tax_unit_dependent: true
+        qbid_amount: 0
+        short_term_capital_gains: -100_000
+    tax_units:
+      unit:
+        members: [head, child]
+        taxable_income_less_qbid: 100_000
+  output:
+    # Parent: 40,000 + 5,000 = 45,000; the child's loss is not netted.
+    section_199a_net_capital_gain: 45_000
+    # 20% x (100,000 - 45,000) = 11,000.
+    qualified_business_income_deduction: 11_000
diff --git a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/section_199a_net_capital_gain.yaml b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/section_199a_net_capital_gain.yaml
new file mode 100644
index 00000000000..9aeaefef571
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/deductions/qbid/section_199a_net_capital_gain.yaml
@@ -0,0 +1,142 @@
+# Net capital gain for the 26 U.S.C. 199A(a)(2) income limitation: 2025 Form
+# 8995 line 12 (Form 8995-A line 34), "Form 1040 ... line 3a, plus your net
+# capital gain", where net capital gain is "the smaller of Schedule D (Form
+# 1040), line 15 or 16, unless line 15 or 16 is zero or less", or "Form 1040
+# ... line 7a" without Schedule D. Treas. Reg. 1.199A-1(b)(3): "net capital gain
+# as defined in section 1222(11) plus any qualified dividend income".
+
+- name: Unrecaptured section 1250 gain stays in net capital gain
+  period: 2025
+  input:
+    long_term_capital_gains: 40_000
+    unrecaptured_section_1250_gain: 30_000
+  output:
+    # Schedule D line 15 = line 16 = $40,000; Form 1040 line 3a = $0.
+    # Form 8995 line 12 = $0 + $40,000 = $40,000.
+    section_199a_net_capital_gain: 40_000
+    # 26 U.S.C. 1(h)(3) takes the 1250 gain out: $40,000 - $30,000.
+    adjusted_net_capital_gain: 10_000
+
+- name: 28-percent rate gain stays in net capital gain
+  period: 2025
+  input:
+    long_term_capital_gains: 50_000
+    long_term_capital_gains_on_collectibles: 50_000
+    qualified_dividend_income: 10_000
+  output:
+    # Schedule D line 15 = line 16 = $50,000, all collectibles gain (line 18).
+    # Form 8995 line 12 = $10,000 (line 3a) + $50,000 = $60,000.
+    section_199a_net_capital_gain: 60_000
+    # 26 U.S.C. 1(h)(3): ($50,000 - $50,000) + $10,000 of dividends.
+    adjusted_net_capital_gain: 10_000
+
+- name: Short-term loss nets against long-term gain
+  period: 2025
+  input:
+    long_term_capital_gains: 30_000
+    short_term_capital_gains: -10_000
+    qualified_dividend_income: 5_000
+  output:
+    # Schedule D line 7 = -$10,000; line 15 = $30,000;
+    # line 16 = -$10,000 + $30,000 = $20,000. Smaller of 15 or 16 = $20,000.
+    # Form 8995 line 12 = $5,000 + $20,000 = $25,000.
+    section_199a_net_capital_gain: 25_000
+
+- name: Short-term gain is not net capital gain
+  period: 2025
+  input:
+    long_term_capital_gains: 30_000
+    short_term_capital_gains: 8_000
+  output:
+    # Schedule D line 15 = $30,000; line 16 = $38,000. Smaller = $30,000.
+    section_199a_net_capital_gain: 30_000
+
+- name: Combined loss leaves only qualified dividends
+  period: 2025
+  input:
+    long_term_capital_gains: 10_000
+    short_term_capital_gains: -15_000
+    qualified_dividend_income: 2_000
+  output:
+    # Schedule D line 15 = $10,000; line 16 = -$5,000, zero or less, so
+    # "nothing is added to the qualified dividends". Line 12 = $2,000.
+    section_199a_net_capital_gain: 2_000
+
+- name: Long-term loss leaves only qualified dividends
+  period: 2025
+  input:
+    long_term_capital_gains: -5_000
+    short_term_capital_gains: 20_000
+    qualified_dividend_income: 1_000
+  output:
+    # Schedule D line 15 = -$5,000, zero or less. Line 12 = $1,000.
+    section_199a_net_capital_gain: 1_000
+
+- name: Capital gain distributions without Schedule D
+  period: 2025
+  input:
+    non_sch_d_capital_gains: 8_000
+    qualified_dividend_income: 2_000
+  output:
+    # Not required to file Schedule D: net capital gain is Form 1040 line 7a.
+    # Form 8995 line 12 = $2,000 + $8,000 = $10,000.
+    section_199a_net_capital_gain: 10_000
+
+- name: Form 4952 investment income election does not reduce it
+  period: 2025
+  input:
+    long_term_capital_gains: 50_000
+    qualified_dividend_income: 10_000
+    investment_income_elected_form_4952: 20_000
+  output:
+    # Form 8995 line 12 uses Form 1040 line 3a ($10,000), which the Form 4952
+    # line 4g instructions say not to reduce, plus the smaller of Schedule D
+    # lines 15 and 16 ($50,000). Treas. Reg. 1.199A-1(b)(3) uses section
+    # 1222(11) net capital gain and section 1(h)(11)(B) qualified dividends.
+    section_199a_net_capital_gain: 60_000
+    # 26 U.S.C. 1(h)(2) takes the $20,000 elected gain out for section 1(h).
+    net_capital_gain: 40_000
+
+- name: Gains and dividends of both spouses
+  period: 2025
+  input:
+    people:
+      head:
+        long_term_capital_gains: 20_000
+      spouse:
+        short_term_capital_gains: -5_000
+        qualified_dividend_income: 3_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+  output:
+    # Schedule D line 15 = $20,000; line 16 = $15,000. Line 3a = $3,000.
+    # Form 8995 line 12 = $3,000 + $15,000 = $18,000.
+    section_199a_net_capital_gain: 18_000
+
+- name: A negative qualified dividend input adds nothing
+  period: 2025
+  input:
+    long_term_capital_gains: 10_000
+    qualified_dividend_income: -2_000
+  output:
+    # Form 1040 line 3a cannot be negative; the gain is not reduced.
+    section_199a_net_capital_gain: 10_000
+
+- name: Spouses' qualified dividends are summed before the zero floor
+  period: 2025
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        long_term_capital_gains: 10_000
+        qualified_dividend_income: 5_000
+      spouse:
+        is_tax_unit_spouse: true
+        qualified_dividend_income: -2_000
+    tax_units:
+      unit:
+        members: [head, spouse]
+  output:
+    # 10,000 + max(0, 5,000 - 2,000).
+    section_199a_net_capital_gain: 13_000
diff --git a/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/qualified_business_income_deduction.py b/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/qualified_business_income_deduction.py
index 2703ee6f05c..6d7c6bbbb51 100644
--- a/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/qualified_business_income_deduction.py
+++ b/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/qualified_business_income_deduction.py
@@ -8,8 +8,11 @@ class qualified_business_income_deduction(Variable):
     unit = USD
     definition_period = YEAR
     reference = (
+        "https://www.law.cornell.edu/uscode/text/26/199A#a",
         "https://www.law.cornell.edu/uscode/text/26/199A#b_1",
         "https://www.irs.gov/pub/irs-prior/p535--2018.pdf",
+        "https://www.irs.gov/pub/irs-prior/f8995--2025.pdf",
+        "https://www.irs.gov/pub/irs-prior/i8995--2025.pdf#page=4",
     )
 
     def formula(tax_unit, period, parameters):
@@ -23,10 +26,11 @@ def formula(tax_unit, period, parameters):
         filer = ~person("is_tax_unit_dependent", period)
         qbid_amt = person("qbid_amount", period)
         uncapped_qbid = tax_unit.sum(qbid_amt * filer)
-        # apply taxinc cap at the TaxUnit level following logic
-        # in 2018 IRS Publication 535, Worksheet 12-A, lines 32-37
+        # apply taxinc cap at the TaxUnit level following 26 U.S.C.
+        # 199A(a)(2): 20 percent of taxable income over net capital gain
+        # (2025 Form 8995 lines 11-14, Form 8995-A lines 33-36)
         taxinc_less_qbid = tax_unit("taxable_income_less_qbid", period)
-        netcg_qdiv = tax_unit("adjusted_net_capital_gain", period)
+        netcg_qdiv = tax_unit("section_199a_net_capital_gain", period)
         p = parameters(period).gov.irs.deductions.qbi
         taxinc_cap = p.max.rate * max_(0, taxinc_less_qbid - netcg_qdiv)
         pre_floor_qbid = min_(uncapped_qbid, taxinc_cap)
diff --git a/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/section_199a_net_capital_gain.py b/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/section_199a_net_capital_gain.py
new file mode 100644
index 00000000000..f0ca6fb51f5
--- /dev/null
+++ b/policyengine_us/variables/gov/irs/income/taxable_income/deductions/qualified_business_income_deduction/section_199a_net_capital_gain.py
@@ -0,0 +1,71 @@
+from policyengine_us.model_api import *
+
+
+class section_199a_net_capital_gain(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = "Net capital gain for the qualified business income deduction"
+    unit = USD
+    documentation = (
+        "Net capital gain under 26 U.S.C. 1222(11) plus qualified dividend "
+        "income, the amount subtracted from taxable income in the 26 U.S.C. "
+        "199A(a)(2) income limitation (Form 8995 line 12, Form 8995-A line "
+        "34). Unlike adjusted net capital gain, it keeps unrecaptured section "
+        "1250 gain and 28-percent rate gain. Unlike net_capital_gain, it is "
+        "not reduced by a Form 4952 investment income election. It counts the "
+        "head's and spouse's gains and dividends only: a tax unit dependent's "
+        "are on the dependent's own return, as taxable income already leaves "
+        "them off this one."
+    )
+    definition_period = YEAR
+    reference = [
+        dict(
+            title="26 U.S. Code § 199A(a)(2)(B)",
+            href="https://www.law.cornell.edu/uscode/text/26/199A#a_2_B",
+        ),
+        dict(
+            title="26 CFR § 1.199A-1(b)(3)",
+            href="https://www.ecfr.gov/current/title-26/part-1/section-1.199A-1#p-1.199A-1(b)(3)",
+        ),
+        dict(
+            title="26 U.S. Code § 1222(11)",
+            href="https://www.law.cornell.edu/uscode/text/26/1222#11",
+        ),
+        dict(
+            title="2025 Instructions for Form 8995, line 12",
+            href="https://www.irs.gov/pub/irs-prior/i8995--2025.pdf#page=4",
+        ),
+        dict(
+            title="2025 Instructions for Form 8995-A, line 34",
+            href="https://www.irs.gov/pub/irs-prior/i8995a--2025.pdf#page=7",
+        ),
+    ]
+
+    def formula(tax_unit, period, parameters):
+        # Treas. Reg. 1.199A-1(b)(3): "net capital gain as defined in section
+        # 1222(11) plus any qualified dividend income (as defined in section
+        # 1(h)(11)(B))". Neither part is reduced by a Form 4952 line 4g
+        # election: the form uses Form 1040 line 3a, which the Form 4952
+        # instructions say not to reduce, and Schedule D lines 15 and 16.
+        # Schedule D line 15: net long-term gain, including capital gain
+        # distributions (long-term under 26 U.S.C. 852(b)(3)(B)). Without
+        # Schedule D, net capital gain is Form 1040 line 7a.
+        # Dependents' amounts are left out before netting, so a dependent's
+        # loss never offsets the filer's gain.
+        long_term_gain = tax_unit_non_dep_add(
+            tax_unit,
+            period,
+            ["long_term_capital_gains", "non_sch_d_capital_gains"],
+        )
+        # Schedule D line 16: line 7 (net short-term gain) plus line 15.
+        combined_gain = long_term_gain + tax_unit_non_dep_add(
+            tax_unit, period, ["short_term_capital_gains"]
+        )
+        # "The smaller of Schedule D (Form 1040), line 15 or 16, unless line
+        # 15 or 16 is zero or less, in which case nothing is added to the
+        # qualified dividends."
+        net_capital_gain = max_(0, min_(long_term_gain, combined_gain))
+        qualified_dividends = max_(
+            0, tax_unit_non_dep_add(tax_unit, period, ["qualified_dividend_income"])
+        )
+        return net_capital_gain + qualified_dividends