The Qualified Business Income Deduction (QBID), also known as the Section 199A deduction, allows eligible taxpayers to deduct up to 20% of qualified business income (QBI) from a qualified trade or business. The deduction is generally available to owners of pass-through businesses, including sole proprietorships, partnerships, S corporations, and certain LLCs.
The One Big Beautiful Bill Act (OBBBA) made the Section 199A deduction permanent beginning with tax year 2026 (returns filed in 2027). Prior to this change, the deduction was scheduled to expire after the 2025 tax year.
Components of the QBID
The deduction consists of two potential components:
- A deduction of up to 20% of qualified business income (QBI) from a qualified trade or business.
- A deduction related to qualified Real Estate Investment Trust (REIT) dividends and qualified Publicly Traded Partnership (PTP) income.
Factors That May Limit the Deduction
Depending on the taxpayer's income level, the QBID may be limited by:
- The type of trade or business operated.
- Whether the business is classified as a Specified Service Trade or Business (SSTB).
- The taxpayer's taxable income.
- The amount of W-2 wages paid by the business.
- The Unadjusted Basis Immediately After Acquisition (UBIA) of qualified business property.
New Rules Effective for Tax Year 2026
The One Big Beautiful Bill (OBBBA) introduced several important changes beginning in 2026:
- Permanent Extension of the QBID: The deduction no longer expires after 2025.
- Expanded Phase-In Ranges: The income ranges used to phase in wage, property, and SSTB limitations increased from $50,000 to $75,000 for most filers and from $100,000 to $150,000 for married taxpayers filing jointly.
- New Minimum Deduction: Taxpayers who materially participate in a qualified trade or business and have at least $1,000 of aggregate QBI may qualify for a minimum QBID of $400. These amounts will be adjusted for inflation in future years.
General QBID Limitation
The total deduction is generally limited to the lesser of:
- 20% of the taxpayer's combined qualified business income, plus qualified REIT dividends and qualified PTP income, or
- 20% of taxable income, reduced by net capital gains.
Who Qualifies for the QBID?
The Qualified Business Income Deduction may be available to:
- Individuals
- Trusts
- Estates
that receive:
- Qualified business income from a pass-through business,
- Qualified REIT dividends, or
- Qualified PTP income.
Taxpayers may claim the deduction whether they choose the standard deduction or itemize deductions on Schedule A.
Income That Does Not Qualify
The following income is generally not eligible for the QBID:
- Wages earned as an employee and reported on Form W-2.
- Income earned through a C corporation.
- Certain investment-related income.
How Is the Qualified Business Income Deduction Calculated?
The QBID is generally calculated as the lesser of:
- 20% of qualified business income, plus 20% of qualified REIT dividends and qualified PTP income; or
- 20% of taxable income, reduced by net capital gains.
Note: Our software will automatically calculate your QBID if applicable.
Income Threshold Considerations
For taxpayers with taxable income below the annual Section 199A thresholds, the deduction is generally available without applying the wage and property limitations.
For tax year 2026, the threshold amounts are:
- $201,750 for Single and Head of Household filers.
- $403,500 for Married Filing Jointly taxpayers.
If taxable income exceeds these thresholds, the deduction may be limited based on:
- Whether the business is an SSTB.
- The amount of W-2 wages paid by the business.
- The UBIA of qualified business property.
SSTB and Wage/Property Limitations
For higher-income taxpayers, the Section 199A deduction may be reduced or phased out. These limitations are applied over the expanded phase-in ranges established by the OBBBA:
- $75,000 phase-in range for Single, Head of Household, and Married Filing Separately taxpayers.
- $150,000 phase-in range for Married Filing Jointly taxpayers.
Specified Service Trades or Businesses, such as certain health, law, accounting, consulting, financial services, and performing arts businesses, may lose eligibility once taxable income exceeds the applicable phase-out range.