Qualified Business Income Deduction (Section 199A)
The QBI deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S corporations). Phase-outs apply for specified service trades/businesses (SSTBs) above income thresholds.
Exam Tip
QBI = 20% deduction on pass-through income. SSTBs phase out above threshold. Below threshold = no limitations. W-2 wage/UBIA limit applies above threshold for non-SSTBs.
What is the QBI Deduction?
Section 199A provides up to a 20% deduction on qualified business income from domestic pass-through businesses, taken on the individual return.
Income Thresholds (2025)
| Filing Status | Phase-Out Begins | Phase-Out Ends |
|---|---|---|
| Single | $191,950 | $241,950 |
| MFJ | $383,900 | $483,900 |
SSTB vs. Non-SSTB
| Type | Above Threshold? |
|---|---|
| SSTB (law, health, consulting, accounting) | Deduction phases out completely |
| Non-SSTB | W-2 wages/UBIA limitation applies |
W-2 Wage/UBIA Limitation (Above Threshold)
Deduction limited to GREATER of: (1) 50% of W-2 wages, or (2) 25% of W-2 wages + 2.5% of UBIA (unadjusted basis of qualified property).
Exam Alert
QBI deduction is 20% of qualified business income. SSTBs lose deduction entirely above full phase-out. Below threshold, no limitations apply. REIT dividends and PTP income also qualify separately.
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