The QBI deduction 2026 lets owners of sole proprietorships, partnerships, S corporations and many LLCs deduct up to 20% of qualified business income. It was originally set to expire after 2025, but the One Big Beautiful Bill Act made it permanent, kept the 20% rate, widened the income phase-in ranges, and added a new $400 minimum deduction starting in 2026. Below the 2026 income thresholds of $201,750 for single filers and $403,500 for joint filers, most owners simply take 20% of their business income, subject to an overall taxable-income limit.
QBI Deduction 2026 at a Glance
| Item | 2026 |
|---|---|
| Deduction rate | 20% of qualified business income |
| Threshold, single and head of household | $201,750 of taxable income |
| Threshold, married filing jointly | $403,500 of taxable income |
| Phase-in range | $75,000 single / $150,000 joint (up from $50,000 / $100,000) |
| Fully phased in | $276,750 single / $553,500 joint |
| Minimum deduction | $400 if you have at least $1,000 of QBI from a business you materially participate in |
| Status | Permanent |
The IRS explains the core rules on its qualified business income deduction page.
Who Qualifies?
- Sole proprietors and single-member LLCs filing Schedule C
- Partners in partnerships and multi-member LLCs
- S corporation shareholders
- Some trusts and estates
- Owners of rental real estate that rises to the level of a trade or business
W-2 wages from an employer and income from a C corporation do not qualify. If you are new to how this income flows to your return, see our explainer on pass-through taxation.
What Counts as Qualified Business Income?
QBI is the net income, gain, deduction and loss from a qualified U.S. trade or business. It is reduced by the deductible part of self-employment tax, self-employed health insurance, and contributions to self-employed retirement plans that relate to the business. QBI does not include:
- Capital gains and losses
- Dividends and most interest income
- Reasonable compensation paid to you by your S corporation
- Guaranteed payments to partners
- Income earned outside the United States
Because S corporation salary is excluded, owners need to balance a reasonable wage against the deduction. Our guide to how much S corporation owners should pay themselves covers this trade-off.
How the QBI Deduction 2026 Is Calculated
Below the threshold, the deduction is the lesser of 20% of QBI, or 20% of taxable income before the QBI deduction minus net capital gain.
Example: A sole proprietor has $80,000 of QBI. After the standard deduction and other adjustments, her taxable income before the QBI deduction is $60,000, with no capital gains. 20% of QBI is $16,000, but 20% of taxable income is $12,000. Her deduction is the smaller amount, $12,000.
Minimum deduction example: A part-time consultant with $2,000 of QBI would normally get a $400 deduction (20% of $2,000). Someone with $1,500 of QBI would normally get $300, but the new minimum raises it to $400, as long as they materially participate in the business.
Above the Threshold: Wage and Property Limits
Once taxable income passes the threshold, two extra rules phase in over the $75,000 (single) or $150,000 (joint) range:
- W-2 wage and property limit: The deduction for each business is limited to the greater of 50% of W-2 wages the business pays, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property.
- Specified service businesses (SSTBs): Fields such as health, law, accounting, consulting, financial services, athletics and performing arts lose the deduction entirely once income is above the top of the phase-in range ($276,750 single, $553,500 joint for 2026).
High-income example: A married couple owns a manufacturing company (not a service business) that produces $500,000 of QBI and pays $150,000 of W-2 wages. Their taxable income is $700,000, above the $553,500 top of the 2026 joint phase-in range, so the wage limit applies in full. 20% of QBI is $100,000, but 50% of W-2 wages is $75,000. Assuming no qualified property and no taxable-income limit, their deduction is $75,000. If the business were a consulting firm, an SSTB, the deduction would be zero at that income.
Inside the phase-in range, the reduction is applied proportionally, which is why Form 8995-A and good tax software matter for owners near the thresholds.
How to Claim It
- Form 8995 if your taxable income is at or below the threshold.
- Form 8995-A if you are above the threshold, own an SSTB in the phase-in range, or have more complex situations.
The deduction is taken after AGI, so it lowers taxable income but not AGI. You can claim it whether you itemize or take the standard deduction. Sole proprietors report the underlying income on Schedule C.
Rental Real Estate
Rental income can qualify if the activity rises to the level of a trade or business. The IRS offers a safe harbor for rental enterprises that keep separate books and perform at least 250 hours of rental services a year, among other requirements. Rentals that do not meet the safe harbor may still qualify under the general trade-or-business standard.
REIT Dividends and Publicly Traded Partnerships
A separate 20% component applies to qualified REIT dividends and publicly traded partnership income. It is not subject to the wage and property limits. See our guide to how Section 199A dividends are taxed.
Ways to Maximize the QBI Deduction 2026
- Manage taxable income with retirement contributions and timing of income and expenses to stay under the threshold, especially for service businesses.
- Review S corporation wages. Higher wages reduce QBI but can raise the W-2 wage limit for owners above the threshold.
- Invest in qualified property if the property limit applies.
- Consider aggregating related businesses to combine wages and property for the limits.
- Materially participate in small side businesses to qualify for the $400 minimum.
Frequently Asked Questions
Is the QBI deduction permanent?
Yes. The One Big Beautiful Bill Act removed the 2025 expiration date and kept the rate at 20%.
What is the QBI threshold for 2026?
$201,750 of taxable income for single and head-of-household filers and $403,500 for married couples filing jointly.
What is the new $400 minimum QBI deduction?
Starting in 2026, if you have at least $1,000 of qualified business income from a business you materially participate in, your deduction is at least $400.
Does S corporation salary count as QBI?
No. Reasonable compensation paid to an S corporation owner is excluded. Only the remaining pass-through profit counts.
Final Thoughts
The QBI deduction 2026 is now a permanent part of the tax code and one of the biggest tax breaks available to business owners. Know where your taxable income falls relative to the thresholds, plan S corporation wages carefully, and make sure small side businesses capture the new minimum.
Have questions about how this applies to your situation? Book a free consultation with Aric and get answers from a CPA.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
