Preface: “To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.” – Thomas Jefferson
Qualified Business Income Deduction Changes Under the OBBB Act
On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB) Act into law. One major change in the bill is that it makes the Qualified Business Income (QBI) deduction permanent. The bill also adjusts how the wage and investment limitation and the “specified service trade or business” (SSTB) limitation phase in, changes how the threshold amount is calculated, and—starting in 2026—adds a new inflation-adjusted minimum deduction.
Background
The QBI deduction was first created under the Tax Cuts and Jobs Act (TCJA) for tax years starting after December 31, 2017, and ending before January 1, 2026. It allows certain individuals, trusts, and estates to deduct 20% of qualified business income from:
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- A partnership
- An S corporation
- A sole proprietorship
It also applies to 20% of qualified REIT dividends and qualified publicly traded partnership income. Special rules apply for specified agricultural or horticultural cooperatives.
This deduction:
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- Is taken when calculating taxable income, not adjusted gross income.
- Is available whether or not you itemize deductions.
- Cannot exceed 20% of taxable income (reduced by net capital gains).
Limitations
There are income thresholds where limits begin to phase in:
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- For 2025 joint filers: threshold is $394,600; phase-in ceiling is $544,600.
- For 2025 married filing separately: threshold is $197,300; ceiling is $247,300.
- For 2025 single and head of household: threshold is $197,300; ceiling is $247,300.
Limits are based on W-2 wages paid and capital investment amounts. There is also a gradual phase-out for SSTB income over the thresholds.
Changes Under the OBBB Act
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- QBI deduction is now permanent—it will not expire in 2026 as originally planned.
- The phase-in range for the W-2 wage and investment limit is increased:
- Non-joint returns: from $50,000 to $75,000.
- Joint returns: from $100,000 to $150,000.
- New Minimum Deduction:
- Starting with tax years after December 31, 2025, taxpayers with at least $1,000 in qualified business income from one or more active businesses they materially participate in will receive a minimum $400 QBI deduction (indexed for inflation in future years).
Qualified Business Income Deduction — Old Law vs. OBBB Act
Feature | TCJA Rules (Pre-OBBB) | OBBB Act Changes (Effective 2025) |
Expiration Date | Set to expire after 2025 | Permanent — no sunset date |
Base Deduction Rate | 20% of qualified business income | 20% rate retained |
Phase-In Range for Wage & Investment Limit | $50,000 for non-joint filers, $100,000 for joint filers | $75,000 for non-joint filers, $150,000 for joint filers |
Threshold Amounts (2025) | Joint: $394,600 Single/HOH: $197,300 MFS: $197,300 |
Same thresholds retained |
Specified Service Trade or Business (SSTB) Phase-Out | Begins above threshold + $50k/$100k range | Begins above threshold + $75k/$150k range |
Minimum Deduction | None | $400 minimum deduction (indexed for inflation) for taxpayers with $1,000+ QBI and material participation |
Applies to | Sole proprietors, partnerships, S corps, certain trusts & estates | Same coverage — plus permanent certainty for long-term planning |
Example — Joint Filers with $200,000 QBI
Scenario | Old TCJA Rule (Pre-OBBB) | OBBB Act Rule (2025 onward) |
Qualified Business Income | $200,000 | $200,000 |
Deduction Rate | 20% | 20% |
Deduction Amount | $40,000 | $40,000 (same rate, but now permanent) |
Phase-In Impact | No change below threshold | No change below threshold — but higher phase-in range helps higher earners |
Key Takeaways for Business Owners
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- Long-term certainty — The deduction no longer expires, allowing stable multi-year tax planning.
- Higher phase-in ranges — Helps more high-income taxpayers avoid full deduction phase-outs.
- New minimum deduction — Ensures small business owners with modest QBI still get a benefit.
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Action Steps for Business Owners
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- Review Entity Structure — Ensure you’re maximizing eligibility for the QBI deduction.
- Plan for Income Management — Stay within favorable phase-in thresholds when possible.
- Document Material Participation — Especially for small business owners relying on the minimum deduction.
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Bottom Line: The OBBB Act cements the QBI deduction as a powerful tax savings tool for qualified business owners, providing stability and improved access for both small and high-income earners.