By Income Tax Service Editorial — Reviewed by Diyan Yap, EA (IRS Enrolled Agent) — Updated July 19, 2026
Quick answer: The 20% Qualified Business Income (QBI) deduction under Section 199A was set to expire December 31, 2025. The One Big Beautiful Bill Act made it permanent. If you own a sole proprietorship, partnership, S-corp, or qualifying rental, you can deduct up to 20% of your business income — on top of your standard deduction — for 2026 and beyond.
Key facts:
- The QBI deduction is 20% of qualified business income, now permanent under OBBBA
- It was scheduled to sunset after December 31, 2025 — that threat is gone
- Applies to sole props, partnerships, S-corp shareholders, qualifying rentals, and REIT dividends
- The W-2 wage-limit phase-in range widened to $75,000 single / $150,000 joint (from $50,000 / $100,000), effective tax year 2025 and after
- Specified service businesses (health, law, accounting, consulting, finance) still phase out at higher incomes
For years, the biggest question about the QBI deduction was whether it would survive. It won’t disappear after 2025 anymore. That certainty changes how business owners should plan entity choice, wages, and equipment purchases for the rest of the decade.
What is the QBI deduction and what changed?
The QBI deduction lets owners of pass-through businesses subtract up to 20% of their qualified business income before calculating tax. On $100,000 of qualified business income, that’s a $20,000 deduction — money you never pay income tax on.
What changed in 2026 is permanence. The deduction came from the 2017 tax law and was written to expire at the end of 2025. The One Big Beautiful Bill Act (OBBBA) removed the expiration date. It is now a permanent feature of the code under Section 199A, so you can build multi-year plans around it instead of bracing for it to vanish.
OBBBA also widened the phase-in range for the W-2 wage and property limits — the mechanical zone where high earners start losing the full deduction. That range grew from $50,000 to $75,000 for single filers, and from $100,000 to $150,000 for joint filers. In plain terms: the deduction phases down more gradually, so more business owners keep more of it.
Who qualifies for the QBI deduction?
You qualify if you earn income from a pass-through business — one that reports its profit on your personal return rather than paying its own corporate tax. That covers most Main Street businesses.
You can claim QBI if you own:
- A sole proprietorship (Schedule C)
- A partnership or multi-member LLC
- An S-corporation (on your share of the profit, not your W-2 wages)
- A qualifying rental that rises to a trade or business — the Revenue Procedure 2019-38 safe harbor is one way to get there
- REIT dividends, which get their own QBI treatment
C-corporations don’t qualify — they already pay the flat 21% corporate rate and file their own return. The deduction is for pass-throughs, which is why entity choice matters so much. Our guide on S-corp vs LLC taxes walks through that decision in detail.
How do the 2026 phase-in ranges work?
The phase-in range is the income band where the deduction stops being automatic and starts depending on how much you pay in W-2 wages and how much depreciable property you own. Below the range, you get the full 20% with no wage test. Inside the range, the wage-and-property limits phase in.
OBBBA widened that band, which softens the cliff for successful owners:
| Filing status | Phase-in range width (old) | Phase-in range width (2026) |
|---|---|---|
| Single | $50,000 | $75,000 |
| Married filing jointly | $100,000 | $150,000 |
A wider range means the wage limit bites more slowly. For a growing business that’s just crossing into higher income, that’s real money kept. If your taxable income sits below the threshold entirely, none of this applies — you take the flat 20% and move on.
Who phases out: the SSTB rules
Specified service trades or businesses (SSTBs) face a different, harsher rule: once your taxable income climbs past the threshold, the QBI deduction phases out entirely, no matter how much you pay in wages. An SSTB includes health, law, accounting, consulting, financial services, and any business whose principal asset is the reputation or skill of its owners.
If you run an SSTB and your income is under the threshold, you get the full deduction like anyone else. It’s only above the threshold that service businesses lose it. A plumber, a contractor, or a retailer at the same income keeps the deduction because those aren’t SSTBs. If your income is near the line, timing income and retirement contributions can be the difference between keeping and losing the whole thing — check IRS.gov for the current-year threshold figures, and run your specific numbers before year-end.
Worked example: an S-corp owner’s QBI deduction
Consider Priya, who runs a marketing agency as an S-corporation. In 2026 the business nets $150,000 in profit. She pays herself a reasonable salary of $90,000 in W-2 wages, and the remaining $60,000 passes through to her personal return as qualified business income.
Here’s the QBI math:
- Qualified business income: $60,000 (the pass-through profit after her wages)
- QBI deduction: 20% × $60,000 = $12,000
- That $12,000 comes off her taxable income on top of her standard deduction
If Priya’s taxable income keeps her below the phase-in threshold, she takes the full $12,000. Note the tension baked into an S-corp: the salary she pays herself reduces the QBI base (wages aren’t QBI), but a salary that’s too low invites an IRS challenge. Balancing reasonable compensation against the QBI deduction is the core planning move for S-corp owners — and one worth doing with a professional.
What should you do now?
The permanence of the QBI deduction rewards planning that used to feel risky when the rule was set to expire. Concrete steps for the rest of 2026:
- Confirm your entity actually maximizes QBI. If you’re a high-earning sole prop, an S-corp election may change your wage and QBI mix — model it before assuming.
- Review S-corp reasonable compensation. Too-low wages risk an audit; too-high wages shrink your QBI. There’s a sweet spot for your numbers.
- Pair QBI with equipment write-offs. 100% bonus depreciation lowers business income, which can pull you under a phase-in threshold and protect the deduction.
- Rental owners: document trade-or-business status. If your rentals qualify, QBI applies — see real estate investor tax changes for 2026.
A credentialed tax professional — like an IRS Enrolled Agent — can model your QBI deduction against salary and equipment decisions and usually finds far more than the engagement costs.
FAQ
Is the QBI deduction gone after 2025? No — that’s the biggest misconception this year. The deduction was scheduled to expire December 31, 2025, but the One Big Beautiful Bill Act made it permanent. It’s fully available for 2026 and there is no scheduled sunset.
Does the QBI deduction stack with the standard deduction? Yes. QBI is a separate deduction that comes off your income in addition to the standard deduction. You do not have to itemize to claim it.
Can rental property owners take the QBI deduction? Sometimes. A rental qualifies if it rises to the level of a trade or business. The Revenue Procedure 2019-38 safe harbor — which requires meeting recordkeeping and service-hour tests — is one path to qualify.
I own an accounting firm — can I still get QBI? Only if your taxable income is below the SSTB threshold. Accounting is a specified service business, so above the income threshold the deduction phases out entirely regardless of wages paid.
Does paying myself a higher S-corp salary increase my QBI deduction? No — it usually shrinks it. W-2 wages are not qualified business income, so a bigger salary lowers the pass-through profit the 20% is calculated on. That’s why reasonable-compensation planning matters.
Sources
- IRS: One Big Beautiful Bill provisions — individuals and workers
- IRS: Tax inflation adjustments for tax year 2026, including OBBBA amendments
This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change and individual situations vary — consult a qualified tax professional about your specific circumstances.