The Qualified Business Income (QBI) deduction, also known as Section 199A deduction, allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities and sole proprietorships.

Eligible Business Types

• Sole proprietorships (Schedule C)
• Partnerships
• S corporations
• LLCs (taxed as sole prop or partnership)
• Rental real estate (if rises to trade or business)
• REITs and PTPs (special rules apply)

Income Thresholds (2025)

• Single/HOH: Full deduction up to $191,950, phaseout $191,950-$241,950
• MFJ: Full deduction up to $383,900, phaseout $383,900-$483,900
• Above phaseout: W-2 wage and property limitations apply
• SSTB businesses excluded above phaseout threshold

Calculation Methods

• Basic: 20% of QBI (if below threshold)
• W-2 Wage Limit: 50% of W-2 wages paid by business
• Alternative Limit: 25% of W-2 wages + 2.5% of UBIA of qualified property
• Overall Limit: 20% of taxable income minus net capital gains

Important Considerations

• QBI includes ordinary income but not capital gains, dividends, or interest
• Reasonable compensation from S-corps is not QBI
• Losses carry forward to offset future QBI
• Aggregation elections available for related businesses
• Safe harbor for rental real estate enterprises