What Is the QBI Deduction and Who Still Qualifies in 2026?
Sam's List Editorial | 2026-07-24
What Is the QBI Deduction and Who Still Qualifies in 2026? The qualified business income deduction, or QBI deduction, lets many owners of pass-through businesses deduct up to 20 percent of their qualified business income before calculating federal income tax. It comes from Section 199A of the tax code, and for years it carried an expiration date. That has changed: the deduction was made permanent for tax years beginning after December 31, 2025, so it is a fixture of the 2026 tax landscape rather than a benefit set to disappear. Here is what the deduction is, how it works, and who still qualifies for it in 2026. What the QBI Deduction Actually Is The QBI deduction is a deduction of up to 20 percent of qualified business income for owners of pass-through entities: sole proprietorships, partnerships, S corporations, and most LLCs. Because these businesses pass their income through to the owner's personal return, the deduction shows up there, reducing the income on which you are taxed rather than the tax itself. Qualified business income is generally the net income from a qualifying US business. It does not include items like capital gains, dividends, or interest income not tied to the business, and it does not include reasonable compensation an S-corp pays its owner or reliable payments to partners. The deduction is available whether or not you itemize, which is part of why it matters to so many owners. The 2026 Income Thresholds The deduction gets more complicated as income rises, and the key figures are the taxable-income thresholds. For 2026, the thresholds are $201,750 for single filers and $403,500 for married couples filing jointly. Below those thresholds, the calculation is relatively simple: most owners can take the full 20 percent of qualified business income, subject to an overall limit tied to taxable income. Above them, additional limitations kick in, and for some businesses the deduction phases out entirely. This is why the same deduction can feel automatic for one owner and frustratingly conditional for another. How the Phase-Ins and Limits Work Once your income is above the threshold, two things happen. First, the deduction becomes subject to limits based on the W-2 wages your business pays and the unadjusted basis of the qualified property it holds. In practice, a business with employees and payroll can often still claim a meaningful deduction, while a high-income business with little payroll may see it reduced. Second, the range over which these limits phase in has been widened. For 2026, the phase-in range is $75,000 for non-joint...
