The QBI Deduction Gets a Boost Under OBBB

July 28, 2025

Small business owners have reason to celebrate: the Qualified Business Income (QBI) deduction—a powerful tax benefit introduced in 2018—is now permanent, thanks to Reconciliation Bill, the OBBB signed into law on July 4, 2025.   This change marks a significant win for entrepreneurs and pass-through entity owners navigating the complexities of U.S. tax law.

What Is the QBI Deduction?

The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income, which includes net income, gains, deductions, and losses from a U.S. trade or business. It also applies to up to 20% of income from qualified real estate investment trust (REIT) dividends.

Eligible taxpayers include:

  • Sole proprietors;
  • Owners of pass-through entities such as partnerships, S corporations, and LLCs treated as such for tax purposes;
  • Note that C corporations are excluded.

Income Limits and Phase-Outs

The deduction begins to phase out when taxable income exceeds:

  • $197,300 for single filers
  • $394,600 for married couples filing jointly

Once income surpasses $247,300 (single) or $494,600 (joint), the deduction becomes subject to stricter limits based on:

  • 50% of W-2 wages paid by the business, or
  • 25% of W-2 wages plus 2.5% of the cost of qualified property used to produce QBI

Additionally, specified service businesses—such as law, health, consulting, and performing arts—face further reductions and potential elimination of the deduction if income exceeds the thresholds.

What’s New Under the OBBB?

Starting in 2026, the OBBB expands the phase-in ranges for income limits:

  • From $50,000 to $75,000 for single filers
  • From $100,000 to $150,000 for joint filers

This means more taxpayers may qualify for larger deductions. These thresholds will also be adjusted annually for inflation.

Another notable addition is a minimum deduction of $400 for taxpayers who materially participate in an active trade or business and have at least $1,000 of QBI. This too will be inflation-adjusted after 2026.

Strategic Implications

With these changes, now is a great time for small business owners to revisit their tax strategies. Adjusting business structures, compensation models, or investment plans could help maximize the QBI deduction under the new law.

Download a one-page summary of Effective OBBB Dates for Businesses here.

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Brian Kern

Brian Kern

CPA

Partner

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