QBI Deduction 2026: What It Is and How to Claim It

The Qualified Business Income deduction under IRC §199A is 20% off your business profit for federal income-tax purposes — before you even calculate your tax. It applies to sole proprietors, partnerships, S-corps, single-member LLCs, and most pass-through structures. It does not reduce self-employment tax, and it does not apply to W-2 wages from a day job. But for almost every self-employed taxpayer and small-business owner who earns income through a pass-through entity, it’s the single largest income-tax break available — and as of 2026, the One Big Beautiful Bill Act (OBBBA, P.L. 119-21, §70105) made it permanent and added a $400 floor that protects the smallest filers.

This guide covers what QBI is, who qualifies, how the 2026 thresholds work, what changes above the threshold, which businesses are Specified Service Trades or Businesses (SSTBs) and which aren’t, how rental real estate fits, the rules for losses and aggregation, and how to actually claim it on Form 8995 or 8995-A. Four worked examples — a gig driver, a consultant in the SSTB phase-in band, a real estate investor, and a retiree with REIT dividends — show the math end to end.

Key takeaways

• The §199A deduction is 20% of qualified business income from a pass-through, claimed on Form 8995 or 8995-A and flowing to Form 1040 Line 13.
• OBBBA §70105 made §199A permanent (it was scheduled to sunset after 2025) and added a $400 minimum deduction for taxpayers with at least $1,000 of QBI from an active trade or business.
• 2026 thresholds (Rev. Proc. 2025-32 §4.26): $201,750 for single, head of household, and most other returns; $201,775 for married filing separately; $403,500 for married filing jointly.
• The phase-in band above the threshold widened under OBBBA from $50K/$100K to $75K (single) and $150K (MFJ).
• Above the threshold, non-SSTB deductions are capped at the greater of 50% of W-2 wages paid by the business or 25% of W-2 wages + 2.5% of UBIA of qualified property.
• SSTBs — law, health, accounting, consulting, financial services, and a few others — lose the deduction entirely above the top of the phase-in range.
• §199A also gives a separate 20% deduction for qualified REIT dividends and PTP income, available regardless of AGI and not subject to W-2/UBIA or SSTB limits.

What is the QBI deduction?

Section 199A of the Internal Revenue Code creates a deduction equal to 20% of qualified business income from a pass-through entity — sole proprietorship, partnership, S-corp, single-member LLC, certain trusts and estates. The deduction was added by the Tax Cuts and Jobs Act of 2017, originally with a December 2025 sunset. The One Big Beautiful Bill Act, signed July 4, 2025, struck that sunset and made §199A permanent.

The deduction does not reduce self-employment tax — only federal income tax. It does not apply to W-2 wages earned as an employee, even from your own business. It also does not apply to guaranteed payments received by a partner in a partnership, or to reasonable compensation paid to a more-than-2% S-corp shareholder-employee.

QBI is claimed on Form 8995 (the simplified one-page form) or Form 8995-A (the longer version with Schedules A–D, required when income is above the threshold or other complications apply). The result flows to Form 1040 Line 13.

A taxpayer with multiple qualified trades or businesses computes QBI separately for each, then nets them at the end. A loss in one business reduces QBI from others; an aggregate loss carries to the next year.

Who qualifies for the QBI deduction?

Almost every self-employed person and small-business owner with pass-through income qualifies for at least some §199A deduction. The audiences that benefit most:

• Sole proprietors filing Schedule C — freelancers, gig workers (rideshare, delivery, real estate agents, contractors), independent professionals.
• Single-member LLCs treated as disregarded entities for tax purposes.
• Partners in partnerships and members of multi-member LLCs — their share of partnership QBI flows through on Schedule K-1.
• S-corporation shareholders — their share of S-corp QBI flows through on Schedule K-1.
• Rental real estate owners whose activity rises to the level of a §162 trade or business (covered below).
• Trusts and estates with QBI flowing to them — the deduction is computed at the entity level subject to the same threshold rules.
• Anyone with qualified REIT dividends or PTP income, regardless of whether they have any QBI from a trade or business.

Audiences that do not qualify:

• W-2 employees — even if you do the same work as an independent contractor would, your W-2 wages don’t qualify.
• C-corporation shareholders — C-corps got the corporate-rate cut, not §199A.
• Investment-only activity that doesn’t rise to a trade or business — passive interest, dividends from non-REIT stocks, capital gains.

For high-income filers, two additional gates apply: the SSTB rule (covered below) can eliminate the deduction for certain professional service businesses, and the W-2/UBIA limit can cap it for capital-light businesses with few employees.

The 2026 thresholds and phase-in ranges

The §199A thresholds determine which form you use and whether the W-2/UBIA limit and SSTB carve-out apply. Per Rev. Proc. 2025-32 §4.26:

Below the threshold → no W-2 wage limit, no UBIA limit, no SSTB exclusion. Every qualified pass-through gets the full 20% on QBI. File Form 8995.

Within the phase-in band → the W-2/UBIA limit phases in proportionally for non-SSTBs; SSTBs lose the deduction proportionally. File Form 8995-A with Schedule A for the SSTB calculation.

Above the top of the phase-in band → the W-2/UBIA limit applies in full to non-SSTBs; SSTBs are excluded entirely. File Form 8995-A.

OBBBA expanded the phase-in band from the original TCJA $50,000 / $100,000 to $75,000 / $150,000 as part of the §70105 changes. The band itself is inflation-indexed for tax years beginning after 2026.

The threshold is based on taxable income before the QBI deduction, not AGI and not gross income. A single filer with $250,000 of gross income, $50,000 of itemized deductions, and $40,000 of half-SE-tax-and-retirement adjustments has taxable income before QBI of $160,000 — well below the $201,750 threshold despite the much higher gross.

SSTB: what’s a Specified Service Trade or Business?

A Specified Service Trade or Business loses the §199A deduction once taxable income exceeds the top of the phase-in band. Below the threshold, SSTB status is irrelevant — everyone gets 20%. Within the phase-in, SSTBs phase out proportionally. Above the top, SSTBs get nothing.

The thirteen SSTB categories under Treas. Reg. §1.199A-5(b)(1), tracking IRC §199A(d)(2):

1. Health (physicians, dentists, veterinarians, nurses, pharmacists, therapists, psychologists)
2. Law (attorneys, paralegals, mediators)
3. Accounting (CPAs, EAs, bookkeepers, tax preparers)
4. Actuarial science
5. Performing arts (actors, singers, musicians, directors — but not artists or writers)
6. Consulting (advice to clients for a fee — but excludes incidental advice tied to product sales)
7. Athletics (athletes, coaches, team managers)
8. Financial services (financial advisors, wealth managers, investment advisors)
9. Brokerage services in securities (specifically excludes real estate and insurance brokers)
10. Investing and investment management
11. Trading (in securities, commodities, partnership interests)
12. Dealing (in securities, commodities, partnership interests)
13. The catch-all: any trade or business where “the principal asset is the reputation or skill” of one or more employees or owners

How the regs narrowed the catch-all

The catch-all looked dangerously broad when TCJA passed — any service business with a reputation-driven owner might have been pulled in. The 2019 final regs at §1.199A-5(b)(2)(xiv) sharply limited it. The “reputation or skill” catch-all now applies only to three types of income:

• (A) Endorsement fees for products or services
• (B) Licensing fees for the use of an individual’s image, likeness, name, signature, voice, trademark, or other identity symbols
• (C) Appearance fees (events, radio, TV, podcasts, speaking engagements)

This is the celebrity carve-down. Absent these three income types, a business is not an SSTB just because its success depends on the founder’s expertise or reputation. A famous baker, a sought-after architect, or a top-rated landscaper is not automatically an SSTB.

Medical-adjacent edge cases

The medical SSTB carve-out catches more than physicians. Per the regulation examples in §1.199A-5(b)(2)(ii):

• Surgical centers that operate facilities but contract with independent physicians perform administrative functions, not health services — not an SSTB.
• Dental and medical testing labs, pharmaceutical research, and medical-device manufacturing — not health services.
• Health clubs and spas — not health-services SSTBs.
• Senior residential facilities providing housing and meals, coordinating (not delivering) medical care — not SSTBs.

By contrast, the actual practice of medicine — physicians, dentists, veterinarians, psychologists, optometrists, chiropractors — is an SSTB.

What’s not an SSTB (even though it looks like it might be)

• Real estate sales (brokers and agents). §1.199A-5(b)(2)(x) excludes real estate from “brokerage services.”
• Insurance sales. Same exclusion.
• Banking (taking deposits, making loans). Specifically excluded from “financial services.”
• Engineering and architecture. Both were on Congress’s original SSTB list but were removed before TCJA passed.
• Rideshare, delivery, and gig driving. Driving people or goods is not consulting, brokerage, or any SSTB category.
• Writers, artists, and most non-performance creatives. Not in performing arts and not in the catch-all unless they sell endorsements, license images, or charge appearance fees.

Above the threshold: the W-2 wages and UBIA limit

For non-SSTBs above the top of the phase-in, the §199A deduction is capped at the greater of:

• (a) 50% of W-2 wages paid by the business, or
• (b) 25% of W-2 wages + 2.5% of UBIA of qualified property.

This is IRC §199A(b)(2)(B), with mechanics spelled out in Treas. Reg. §1.199A-1(d) and §1.199A-2.

What UBIA means

UBIA = Unadjusted Basis Immediately After Acquisition. Per Treas. Reg. §1.199A-2(c)(3), this is the cost basis at acquisition for qualified property — tangible depreciable §167 property held in the trade or business at year-end and used at any point during the year. UBIA is not reduced for §179 expensing, bonus depreciation, or ordinary MACRS depreciation. The basis stays frozen at acquisition for §199A purposes.

UBIA persists for the longer of (i) 10 years from the placed-in-service date, or (ii) the property’s MACRS recovery period. Land and intangibles don’t count. A business that owns a $2M office building has UBIA only for the depreciable improvements — the land portion of the basis is excluded.

The 2.5% UBIA prong rescues capital-heavy, labor-light businesses

Without the 2.5% UBIA option, a real estate rental enterprise that owns a $2M building, pays no W-2 wages, and qualifies as a §162 trade or business would be locked out of §199A above the threshold. The UBIA prong fixes that. Cap = 25% × $0 wages + 2.5% × $2M UBIA = $50,000. If the rental’s QBI is $200,000, 20% × $200,000 = $40,000 — under the $50K cap, fully deductible.

Below the threshold, none of this applies — the W-2/UBIA test is bypassed entirely.

Aggregating multiple businesses under §1.199A-4

Aggregation lets a taxpayer combine multiple trades or businesses for purposes of applying the W-2/UBIA limit. It’s especially useful when one business has lots of wages and another has lots of QBI but few wages.

The five-prong test at Treas. Reg. §1.199A-4(b)(1):

1. The same person or group of persons (with §267(b)/§707(b) attribution) owns 50% or more of each business — measured by stock value for S-corps and capital or profits for partnerships.
2. That ownership exists for a majority of the taxable year, including the last day.
3. All aggregated businesses are reported on returns with the same taxable year.
4. None of the businesses is an SSTB.
5. The businesses meet at least two of three factors: (A) provide products/services that are the same or customarily offered together; (B) share facilities or significant centralized business elements (HR, accounting, IT, purchasing); (C) operate in coordination with or in reliance on one another.

Aggregation is elective, sticky (once aggregated, you must continue), and requires an attached disclosure statement under §1.199A-4(c)(2).

After aggregation, QBI, W-2 wages, and UBIA are summed across the aggregate and the 50%/25%+2.5% cap is applied at the aggregate level. An operating LLC with payroll can effectively donate its W-2 wages to a sister real-estate-holding LLC that owns the building but has no employees.

Negative QBI: what happens with a business loss

Per Treas. Reg. §1.199A-1(d)(2)(iii):

1. Within the year: A business with negative QBI offsets positive QBI from other businesses proportionally. If the aggregate is positive, the deduction is 20% × the net.
2. Aggregate negative for the year: The §199A deduction attributable to QBI is zero. The REIT/PTP component (below) is unaffected.
3. Carryforward: The negative aggregate QBI carries to the next tax year as a “negative QBI from a separate trade or business,” reducing that year’s QBI. W-2 wages and UBIA don’t carry forward — only the negative QBI dollars.

Worked example: A sole proprietor has a $30,000 Schedule C loss in 2026 and no other QBI. 2026 §199A deduction from QBI is $0. In 2027 the same proprietor has $100,000 of QBI. The 2026 negative carryover reduces 2027 QBI to $70,000. The 2027 deduction (assuming below the threshold) is 20% × $70,000 = $14,000 — $6,000 less than it would have been without the carryover.

The carryover is indefinite until fully absorbed by future positive QBI. It does not affect the loss’s deductibility for ordinary income tax — only the §199A computation.

REIT dividends and PTP income — a separate 20% component

§199A has two parallel components combined at the end:

1. The QBI component — 20% × QBI from qualified trades or businesses, subject to W-2/UBIA cap, SSTB phase-in, and threshold mechanics.
2. The REIT/PTP component — 20% × qualified REIT dividends + 20% × qualified PTP income.

Per Treas. Reg. §1.199A-3(c), the REIT/PTP component is:

• Not subject to the W-2/UBIA limitation
• Not subject to the SSTB carve-out (with one PTP-SSTB edge case)
• Available regardless of taxable income — no threshold gate
• Available with zero QBI — a retiree with no business income but a REIT in their brokerage account still gets the REIT component

The two components are summed, then capped at an overall limit of 20% × (taxable income − net capital gains) under IRC §199A(a)(1)(B). This overall cap is the only thing constraining the REIT/PTP piece.

Qualified REIT dividends are ordinary dividends from a REIT, excluding capital-gain dividends and qualified-dividend-income portions. They appear on Form 1099-DIV, Box 5 (Section 199A dividends). The shareholder must hold the REIT stock more than 45 days during the 91-day window around the ex-dividend date.

Qualified PTP income is a partner’s allocable share of QBI from a publicly traded partnership treated as a partnership (not as a corporation under §7704). If the PTP itself is in an SSTB business, the PTP income is excluded above the threshold + phase-in.

Rental real estate and the §162 trade-or-business question

Rental real estate qualifies for §199A only if it rises to the level of a §162 trade or business. Two paths get you there.

Path 1: §162 facts and circumstances

A continuous, regular activity entered into for profit — the Higgins v. Commissioner test. No bright line. A single rental with a property manager might or might not qualify; a portfolio of actively managed properties more likely does.

Path 2: Rev. Proc. 2019-38 safe harbor

A “rental real estate enterprise” (one or more properties grouped consistently year-over-year, with residential and commercial kept in separate enterprises) is automatically treated as a §162 trade or business for §199A if all four conditions are met:

1. Separate books and records maintained for the enterprise.
2. 250+ hours of rental services per year performed by the owner, employees, agents, or independent contractors. For enterprises ≥4 years old, the test is 250 hours in 3 of the last 5 years.
3. Contemporaneous records (time reports, logs) of services performed, dates, descriptions, and who performed them. Required for tax years beginning after Dec. 31, 2019.
4. A signed statement attached to the return claiming the safe harbor.

Excluded from the safe harbor: triple-net leases, real estate used as a residence by the taxpayer for any part of the year under §280A, and real estate rented to a commonly controlled SSTB.

The IRS has not modified Rev. Proc. 2019-38 in light of OBBBA’s permanence of §199A. Practitioners are operating under the assumption the safe harbor continues — the IRS has not issued explicit post-2025 reaffirmation as of this writing. For the rental-vs-Schedule-C question more broadly, see our Schedule C vs. Schedule E 2026 guide.

Form 8995 vs. Form 8995-A — which form do you use?

Form 8995 (the simplified form)

One-page, 17-line form. Use it if all of the following are true:

• Taxable income before QBI is at or below the threshold ($201,750 single / $403,500 MFJ for 2026)
• You’re not a patron of a specified agricultural or horticultural cooperative
• No aggregation elections
• No SSTB phase-in calculations

Form 8995-A (the regular form)

Required if any of the following apply:

• Taxable income before QBI exceeds the threshold (so the wage/UBIA cap needs calculation)
• Any SSTB income subject to phase-in
• Aggregation under §1.199A-4
• Patron of a specified ag/hort cooperative
• §199A REIT/PTP dividend complications requiring loss tracking across components

Form 8995-A Schedules:

• Schedule A — Specified Service Trades or Businesses (computes the applicable percentage of SSTB QBI, wages, UBIA allowed within the phase-in)
• Schedule B — Aggregation of Business Operations (lists each aggregated business and the §1.199A-4 factors satisfied)
• Schedule C — Loss Netting and Carryforward (current-year netting + prior-year negative-QBI carryforward)
• Schedule D — Special Rules for Patrons of Agricultural or Horticultural Cooperatives (§199A(g) coordination)

Both forms feed Form 1040 Line 13.

State tax conformity to §199A

§199A is a federal deduction taken below AGI (Form 1040 Line 13, after AGI on Line 11). Because most states begin their state-taxable-income computation from federal AGI — which does not yet include §199A — states must affirmatively pass §199A through to give residents the benefit, and most don’t.

States that fully conform (start from federal taxable income, after Line 13): Colorado, Idaho, North Dakota.

Partial conformity: Iowa.

Every other income-tax state effectively disallows §199A at the state level. Selected states:

Practical implication: a sole proprietor with $50,000 of QBI saves federal tax at marginal rate × 20% × $50K = ~$2,200, but pays full state tax on the $50K in a non-conforming state. Drivers and freelancers in Texas, Florida, Washington, Nevada, South Dakota, Wyoming, Alaska, Tennessee, and New Hampshire avoid the state-conformity issue entirely because there’s no state income tax.

State guidance changes annually — verify your state’s current income tax instructions before relying on a specific treatment.

OBBBA: §199A made permanent + the $400 floor

The One Big Beautiful Bill Act (P.L. 119-21), §70105, signed into law July 4, 2025, made three substantive changes to §199A for tax years beginning after December 31, 2025.

Permanence. The §199A sunset that would have ended the deduction after 2025 was struck. §199A now has no expiration. The entire pre-2026 “use it before it’s gone” tax-planning framing is obsolete.

Expanded phase-in range. The phase-in band widened from $50,000 to $75,000 (single/HoH/MFS) and from $100,000 to $150,000 (MFJ). Wider bands mean SSTBs and wage-poor businesses lose the deduction more gradually. The phase-in dollar amounts are themselves inflation-adjusted for tax years beginning after 2026.

$400 minimum deduction (new IRC §199A(i)). For taxpayers with at least $1,000 of QBI from one or more active qualified trades or businesses in which they materially participate (within the meaning of §469(h)), the §199A deduction is the greater of:

• the regularly computed QBI component, or
• $400.

Both the $400 floor and the $1,000 QBI eligibility threshold are inflation-indexed in increments of $5 for tax years beginning after 2026.

In practice: if your active business has more than $1,000 of net profit, you get at least $400 of QBI deduction even if the standard 20% math would produce less because of the taxable-income cap.

Worked examples

Example 1: Marcus the gig driver (below threshold)

Marcus drives DoorDash and Uber Eats full-time. 2026 numbers:

• Schedule C net profit: $30,000
• No retirement contributions, no SE health insurance
• Single filer, no other income, no W-2 wages

Step	Calculation	Amount
SE tax base	$30,000 × 0.9235	$27,705
SE tax	$27,705 × 15.3%	$4,239
Half-SE deduction (above the line)	$4,239 ÷ 2	$2,120
QBI	$30,000 − $2,120	$27,880
Tentative 20% deduction	20% × $27,880	$5,576
Taxable income before QBI	$30,000 − $2,120 − $16,100 std ded	$11,780
Cap: 20% × taxable income	20% × $11,780	$2,356
Final QBI deduction (cap binds)	greater of cap or $400 floor	$2,356

At a 12% marginal rate, Marcus saves about $283 in federal income tax. The cap binds because his taxable income is low — but the $400 floor under OBBBA still beats the cap calc if his profit had been only $4,000.

Example 2: Priya the consultant in the SSTB phase-in band

Priya is a self-employed management consultant filing as single. Consulting is an SSTB under §1.199A-5(b)(2)(vi). 2026 numbers:

• Schedule C net profit: $240,000
• Half-SE deduction: ~$13,000
• Other deductions: $25,000 (retirement contribution, SE health insurance, itemized)
• Taxable income before QBI: ~$202,000

Priya is just above the $201,750 single threshold and inside the $75,000 phase-in band. Her SSTB deduction phases down proportionally.

Step	Calculation	Amount
Taxable income before QBI		$202,000
Excess over threshold	$202,000 − $201,750	$250
Phase-in fraction	$250 / $75,000	0.333%
SSTB allowance	100% − 0.333%	99.667%
QBI (after adjustments)		~$210,000
Tentative 20% deduction	20% × $210,000	$42,000
Allowed after SSTB phase-in	$42,000 × 99.667%	$41,860

If Priya’s taxable income climbed to $276,750 (the top of the band), her allowed SSTB deduction would be zero. A small retirement contribution that drops her taxable income below the threshold restores the full deduction — a powerful planning lever for SSTBs near the threshold.

Example 3: Devon the rental real estate investor

Devon owns four residential rentals through a single-member LLC. He spends 320 hours a year on rental services (tenant management, repairs coordination, accounting), keeps separate books, and maintains contemporaneous time logs. He attaches a Rev. Proc. 2019-38 safe-harbor statement to his return. 2026 numbers:

• Rental enterprise net income (Schedule E flowing through the LLC): $48,000
• Combined UBIA of the four properties: $1,400,000 (excluding land)
• W-2 wages paid by the rental enterprise: $0 (Devon manages it himself; draws no W-2 from the LLC)
• Filing MFJ, taxable income before QBI: $190,000 — below the $403,500 threshold

Below the threshold, the W-2/UBIA cap doesn’t apply. Devon’s QBI is $48,000 and his deduction is 20% × $48,000 = $9,600.

If Devon’s taxable income were $500,000 (well above the MFJ threshold + phase-in): the W-2/UBIA cap would apply. Cap = greater of (50% × $0 W-2) or (25% × $0 + 2.5% × $1,400,000 UBIA) = $35,000. 20% × $48,000 QBI = $9,600 — well under the $35K cap, so the full $9,600 is still deductible. The 2.5% UBIA prong is what saves Devon at high income.

Example 4: Eleanor the retiree with REIT dividends

Eleanor is retired. She has no Schedule C income, no Schedule K-1, no trade or business. Her income is Social Security plus a brokerage portfolio. 2026 numbers:

• $14,000 in qualified REIT dividends (Form 1099-DIV Box 5)
• $42,000 in other ordinary income (Social Security, interest, qualified dividends, capital gains)
• Single filer, taxable income before QBI: ~$31,000

Eleanor has zero QBI from a trade or business. But the REIT/PTP component is independent of QBI and independent of the threshold. She files Form 8995 and claims:

• REIT/PTP component: 20% × $14,000 = $2,800
• Final §199A deduction: $2,800

At her 12% marginal rate, she saves $336 in federal income tax — money many retirees don’t realize they’re entitled to. The REIT/PTP component is one of the most underclaimed pieces of §199A.

How to maximize your QBI deduction

A handful of high-leverage moves, in rough order of impact:

• Track every business deduction at the source. Mileage, home office, supplies, phone, professional fees — all reduce QBI dollar for dollar, but they also reduce SE tax and income tax in parallel. The 30%-ish combined effective tax rate means each dollar of deduction stacks against three different tax layers.
• If you’re near the SSTB threshold, plan to stay below it. Retirement contributions (SEP-IRA, solo 401(k)) reduce taxable income before QBI and can restore an SSTB deduction phasing out in the band. The math at the threshold cliff is steep.
• If you have rental real estate, actually do the 250 hours and keep contemporaneous logs. The Rev. Proc. 2019-38 safe harbor is the cleanest path to §162 trade-or-business status — but the documentation is what makes it work in an audit.
• If you own multiple businesses with related operations, evaluate aggregation. The §1.199A-4 election can convert a wage-poor business into a wage-rich aggregate above the threshold.
• If you have REIT shares in a taxable brokerage account, you already qualify for the REIT/PTP component. No threshold gate, no W-2 limit. Make sure your tax software is reading Form 1099-DIV Box 5.
• For Schedule C filers, your mileage deduction is usually the single biggest QBI input. We cover the mechanics in our IRS Mileage Rate 2026 guide, Schedule C NAICS codes for self-employed drivers, and the persona-specific rideshare, delivery, and real estate agent pillars.

Frequently asked questions

What is the QBI deduction?

A deduction equal to 20% of qualified business income from pass-through entities — sole proprietorships, partnerships, S-corps, single-member LLCs — claimed on Form 8995 or 8995-A and flowing to Form 1040 Line 13. Created by TCJA in 2017 and made permanent by OBBBA in 2025 under IRC §199A.

Who qualifies for the QBI deduction in 2026?

Self-employed people, sole proprietors filing Schedule C, partners receiving K-1s, S-corp shareholders, rental real estate owners whose activity is a §162 trade or business, and anyone with qualified REIT dividends or PTP income. W-2 employees and C-corp shareholders do not qualify.

What are the 2026 QBI deduction thresholds?

Per Rev. Proc. 2025-32: $201,750 for single, head of household, and most other returns; $201,775 for married filing separately; $403,500 for married filing jointly. Above the threshold, the W-2/UBIA limit and the SSTB phase-out start to apply, with full effect at the top of a $75,000 (single) or $150,000 (MFJ) phase-in band.

Does the QBI deduction reduce self-employment tax?

No. §199A is an income-tax deduction only, claimed on Form 1040 Line 13. The 15.3% self-employment tax computed on Schedule SE is unaffected.

Can I claim QBI if I take the standard deduction?

Yes. §199A is available whether you itemize or take the standard deduction. The 2026 standard deduction is $16,100 for single filers and $32,200 for MFJ.

What is a Specified Service Trade or Business (SSTB)?

Under IRC §199A(d)(2) and Treas. Reg. §1.199A-5, an SSTB is a trade or business in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage in securities, investing, or trading/dealing in securities/commodities/partnership interests — plus a narrowly defined catch-all for endorsement, licensing, and appearance income.

Is rental real estate eligible for QBI?

Yes, if the rental activity rises to a §162 trade or business. The Rev. Proc. 2019-38 safe harbor automatically qualifies a rental real estate enterprise if separate books are kept, 250+ hours of rental services are performed per year, contemporaneous time logs are maintained, and a safe-harbor statement is attached to the return.

Do I get QBI on REIT dividends?

Yes. Qualified REIT dividends and qualified PTP income get a separate 20% deduction under §199A(b)(1)(B). This component is not subject to the W-2/UBIA limit, not subject to the SSTB exclusion, and available regardless of taxable income — including for retirees with no QBI from any trade or business.

What happens to QBI if my business has a loss?

A negative QBI year offsets positive QBI from other businesses within the year. If the aggregate is still negative, the QBI portion of the §199A deduction is zero for that year and the negative carries forward indefinitely, reducing future-year QBI under Treas. Reg. §1.199A-1(d)(2)(iii). The REIT/PTP component is unaffected.

What's the new $400 minimum QBI deduction?

OBBBA §70105 created a $400 floor at IRC §199A(i): any taxpayer with at least $1,000 of QBI from an active trade or business in which they materially participate gets at least a $400 deduction, even if 20% × QBI math produces less. Phased in between $1,000 and $1,500 of QBI; both amounts inflation-indexed starting 2027.

Can I aggregate my businesses for QBI purposes?

Yes, under Treas. Reg. §1.199A-4, if you own ≥50% of each business, they have the same tax year, none are SSTBs, and they meet two of three factors (same products/services, shared facilities or central management, operational interdependence). Aggregation requires a disclosure statement and is sticky in later years.

Form 8995 or Form 8995-A — which do I file?

Form 8995 (the one-page simplified form) if taxable income before QBI is at or below the threshold, no aggregation, no SSTB phase-in, not a co-op patron. Form 8995-A (with Schedules A–D) for anything more complicated — above the threshold, SSTB phase-in, aggregation, or co-op patron status.

Do states allow the QBI deduction?

Mostly no. Only Colorado, Idaho, and North Dakota fully conform; Iowa partially. California, New Jersey, Oregon, South Carolina, New York, Massachusetts, and Pennsylvania all decouple. The §199A deduction is federal-only for residents of non-conforming states.

Did OBBBA permanently extend §199A?

Yes. OBBBA §70105, signed July 4, 2025, struck the original TCJA December 2025 sunset. §199A has no expiration date. OBBBA also expanded the phase-in band from $50K/$100K to $75K/$150K and added the $400 minimum at IRC §199A(i).

Can W-2 employees claim QBI on their wages?

No. §199A excludes W-2 wages entirely — even wages a self-employed person pays themselves through their own S-corp. The deduction is for pass-through business income only.