The Qualified Business Income (QBI) deduction, introduced in 2018, has been a major tax benefit for owners of pass-through entities. It allows eligible taxpayers to deduct up to 20% of QBI, subject to certain limitations. Originally set to expire after 2025, the One, Big, Beautiful Bill Act (OBBBA) has now made the QBI deduction permanent, starting in 2026—and with expanded access for many taxpayers.
What Is the QBI Deduction?
The QBI deduction is generally equal to 20% of qualified business income, not to exceed 20% of taxable income. It also allows a deduction for up to 20% of qualified REIT dividends. The benefit applies to sole proprietors and owners of pass-through entities—such as partnerships, S corporations, and LLCs taxed as those entities. C corporations are not eligible.
Who Can Claim the QBI Deduction?
Taxpayers with income below certain thresholds can generally take the full deduction. In 2025, these thresholds are:
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$197,300 for single filers
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$394,600 for married couples filing jointly
Once income exceeds these limits, additional rules apply to determine how much of the deduction can be taken.
How Income Limits Affect the Deduction
If your taxable income exceeds the threshold, your deduction may be limited based on:
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50% of W-2 wages paid by the business, or
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25% of W-2 wages plus 2.5% of the cost of qualified property used in the business
In addition, owners of specified service trades or businesses (SSTBs)—such as law, health, consulting, performing arts, and athletics—face further limitations. The deduction phases out completely for SSTB income above the top of the applicable income range.
Key QBI Deduction Changes Coming in 2026
The QBI deduction changes under OBBBA expand and enhance the benefit starting in 2026. Here’s what’s new:
1. QBI Deduction Made Permanent
The OBBBA eliminates the 2025 sunset date, ensuring that eligible taxpayers can continue claiming the deduction beyond this year.
2. Wider Phase-In Ranges
The income ranges over which wage/property and SSTB limitations apply will expand significantly:
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From $50,000 to $75,000 for single filers
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From $100,000 to $150,000 for joint filers
This change could allow higher-income taxpayers to retain more of their deduction. Thresholds will continue to adjust for inflation annually.
3. New $400 Minimum Deduction
Starting in 2026, the law introduces a minimum QBI deduction of $400 for taxpayers who:
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Materially participate in an active trade or business, and
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Have at least $1,000 of QBI from that business
This provision ensures that eligible small business owners will receive a base-level deduction regardless of wage/property calculations.
Planning Ahead: What Business Owners Should Do
The QBI deduction 2026 changes present a valuable opportunity to revisit your tax strategy. Consider these steps:
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Review how your business pays W-2 wages or holds qualifying property
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Determine if your income may exceed new phase-in thresholds
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Analyze your eligibility as a specified service business
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Evaluate material participation for the new minimum deduction
Tax planning moves now could increase your allowable QBI deduction later.
Final Thoughts
The OBBBA’s updates to the QBI deduction make this benefit more accessible and predictable for small business owners and pass-through entities. As 2026 approaches, strategic planning can help you take full advantage of these changes.
Need help optimizing your QBI deduction? Contact us to discuss how these rules apply to your situation and how you can position your business for maximum benefit.