QBI Deduction: Section 199A Rules and Income Limits
Last updated 06/09/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
The QBI deduction is a tax break that lets eligible owners of pass-through businesses deduct up to 20% of their qualified business income.
It comes from Section 199A of the tax code and was made permanent in 2025.
- Who can claim it: Owners of sole proprietorships, partnerships, S corporations, and some trusts and estates.
- The benefit: A deduction of up to 20% of qualified business income, taken on top of standard or itemized deductions.
- The income limits: Above set thresholds, extra rules and limits apply, especially for service businesses.
- The status: Permanent after the 2025 One Big Beautiful Bill Act, which was set to expire after 2025.
Pass-through business owners pay tax on profits at their personal rates, which can run higher than the corporate rate. The QBI deduction was built to narrow that gap by shielding a fifth of qualifying profit from tax.
What the QBI deduction is
The qualified business income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through business. It is also called the Section 199A deduction after the law that created it.
According to the IRS, qualified business income is the net amount of qualified income, gains, deductions, and losses from a qualified trade or business. It excludes items like capital gains, dividends, and interest income not tied to the business.
The deduction is taken on your personal return and does not reduce self-employment tax.
Who qualifies for the QBI deduction
The deduction is available to owners of pass-through businesses, where profits flow to the owner’s personal return rather than being taxed at the entity level. C corporations do not qualify because they are taxed separately.
- Sole proprietors: Reported on Schedule C.
- Partnerships and LLCs: Income passed through to partners or members.
- S corporations: Income passed through to shareholders.
- Some trusts and estates: With qualifying business income.
Income from real estate investment trusts and qualified publicly traded partnerships can also generate a related deduction.
How income thresholds change the deduction
Below set income thresholds, most owners can claim the full 20% deduction without extra rules. For 2025, those thresholds are $197,300 for single filers and $394,600 for joint filers.
Above those levels, two limits phase in: a wage-and-property limit, and a restriction on specified service trades or businesses (SSTBs) such as law, accounting, consulting, and health.
| 2025 taxable income | Most businesses | Service business (SSTB) |
|---|---|---|
| Below $197,300 single / $394,600 joint | Full 20% deduction | Full 20% deduction |
| Within the phase-out range | Wage and property limits begin | Deduction begins phasing out |
| Above the top of the range | Limited by wages and property | No deduction allowed |
The service-business rule is why a high-earning consultant may get no deduction while a high-earning manufacturer still can.
Pro Tip
If your income sits just above the threshold, contributions to a retirement plan can lower your taxable income enough to restore part or all of the deduction. Reducing taxable income below the limit can be worth more than the contribution’s direct tax savings alone.
What changed under the 2025 tax law
The QBI deduction was scheduled to expire after 2025, but the One Big Beautiful Bill Act made it permanent. That removed the uncertainty pass-through owners faced about whether the break would survive.
The law also expanded the phase-in ranges starting in 2026 and added a minimum $400 deduction for taxpayers with at least $1,000 of qualified business income, indexed for inflation going forward.
How to claim the QBI deduction
- Confirm your business type: Verify you own a pass-through entity, not a C corporation.
- Total your qualified business income: Use net business income, excluding capital gains, dividends, and interest.
- Check your taxable income: Compare it to the year’s thresholds to see which rules apply.
- Use the right form: File Form 8995 if you are under the threshold, or Form 8995-A if you are above it.
- Apply the limits if needed: Factor in wage, property, and service-business rules at higher incomes.
The deduction reduces taxable income but not adjusted gross income, so it does not affect figures tied to AGI such as certain credits.
Related reading on business taxes
- Schedule C: where sole proprietors report the income that can qualify.
- Partnership: a common pass-through type whose income flows to owners.
- C corp: the entity type that is excluded from the deduction.
- Adjusted gross income: the income measure the QBI deduction does not reduce.
Frequently asked questions
What is the QBI deduction?
The QBI deduction lets eligible pass-through business owners deduct up to 20% of their qualified business income under Section 199A. It is taken on your personal return in addition to the standard or itemized deduction.
Who is eligible for the QBI deduction?
Owners of sole proprietorships, partnerships, LLCs, S corporations, and some trusts and estates can qualify. C corporations are not eligible because they are taxed at the entity level.
What are the QBI income limits for 2025?
For 2025, the full deduction is available below $197,300 of taxable income for single filers and $394,600 for joint filers. Above those amounts, wage, property, and service-business limits begin to apply.
Is the QBI deduction still available?
Yes. The deduction was set to expire after 2025, but the One Big Beautiful Bill Act made it permanent. It also expanded the phase-in ranges and added a minimum deduction beginning in 2026.
What is a specified service trade or business?
An SSTB is a business where the main asset is the skill or reputation of its owners or employees, such as law, accounting, consulting, and health. Above the income thresholds, SSTB owners lose the deduction entirely.
Key takeaways
- The QBI deduction lets eligible pass-through owners deduct up to 20% of qualified business income.
- It applies to sole proprietorships, partnerships, S corporations, and some trusts, but not C corporations.
- For 2025, full eligibility ends at $197,300 single and $394,600 joint, where extra limits begin.
- Service businesses such as law and consulting lose the deduction above the top of the range.
- The 2025 One Big Beautiful Bill Act made the deduction permanent.
Getting the QBI deduction right often takes more than software defaults at higher income levels. You can compare tax preparation and filing services to find help with Section 199A and pass-through returns.
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