Deductions
QBI deduction 2026: thresholds, the new $400 minimum and Form 8995
The qualified business income (Section 199A) deduction for 2026: up to 20% of QBI, the $201,750 / $403,500 thresholds and phase-in ranges from Rev. Proc. 2025-32, the new $400 minimum deduction, what counts as QBI and Form 8995 vs 8995-A.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
The qualified business income (QBI) deduction, also called the Section 199A deduction, lets eligible owners of sole proprietorships, partnerships, S corporations and some trusts and estates deduct up to 20% of their QBI, limited to 20% of taxable income minus net capital gain. For 2026 the IRS thresholds are $201,750 ($201,775 married filing separately, $403,500 married filing jointly), and starting in 2026 taxpayers with at least $1,000 of QBI from businesses they materially participate in get a minimum deduction of $400.
What the QBI deduction is
The IRS says many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for the QBI deduction, also called the Section 199A deduction, for tax years beginning after December 31, 2017. It allows a deduction of up to 20% of QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
Income earned through a C corporation or by providing services as an employee is not eligible. S corporations and partnerships don't take the deduction themselves. They pass the information their shareholders or partners need on an attachment to Schedule K-1.
The deduction is available whether you itemize on Schedule A or take the standard deduction.
How the deduction is figured
The deduction has two parts. The QBI component is 20% of QBI from a domestic business run as a sole proprietorship or through a partnership, S corporation, trust or estate. Depending on taxable income, it can be limited by the type of business, the W-2 wages it pays and the unadjusted basis immediately after acquisition (UBIA) of its qualified property. The REIT/PTP component is 20% of qualified REIT dividends and qualified PTP income, and it isn't limited by W-2 wages or UBIA.
The total is then capped at 20% of taxable income, figured before the QBI deduction, minus net capital gain (increased by any qualified dividends).
For tax years beginning after 2025, the deduction is the greater of that capped amount or the new minimum deduction for active qualified business income. The 2026 Form 8995 adds lines for this: line 15 is the deduction before the minimum, line 16 is the minimum deduction, and line 17 is the greater of the two. Line 17 goes on Form 1040, 1040-SR or 1040-NR, line 13a.
2026 income thresholds and phase-in ranges
Rev. Proc. 2025-32 sets the 2026 threshold and phase-in range amounts. Taxable income here means taxable income before the QBI deduction.
Scroll sideways to see all columns.
| Filing status | 2026 threshold | 2026 phase-in range ends | 2025 threshold | 2025 phase-in range ends |
|---|---|---|---|---|
| Married filing jointly | $403,500 | $553,500 | $394,600 | $494,600 |
| Married filing separately | $201,775 | $276,775 | $197,300 | $247,300 |
| All other returns | $201,750 | $276,750 | $197,300 | $247,300 |
At or below the threshold, the W-2 wage and UBIA limits don't apply, and a specified service trade or business (SSTB) is treated as a qualified trade or business. Within the phase-in range, only an applicable percentage of an SSTB counts, and Schedule A (Form 8995-A) must be completed. Above the threshold, Form 8995-A applies the W-2 wage and UBIA limit: the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the UBIA of qualified property.
New for 2026: the $400 minimum deduction
Section 70105 of the One Big Beautiful Bill Act (OBBBA) amended Section 199A(i) to add a minimum deduction of $400, effective for tax years beginning after December 31, 2025. A taxpayer needs at least $1,000 of qualified business income to be eligible. Both amounts will be adjusted for inflation for tax years beginning after 2026.
The minimum applies only to active qualified business income: aggregate QBI of at least $1,000 from all qualified trades or businesses in which the taxpayer materially participates, within the meaning of Section 469(h). Passive activity income doesn't qualify. To show material participation, the taxpayer needs to meet only one of the material participation tests in Treas. Reg. 1.469-5T(a)(1) through (7).
Material participation isn't required for the regular QBI deduction. It matters only for the minimum. On Form 8995, if the smaller of line 10 or line 14 is less than $400 and you qualify, you enter $400 on line 16.
What counts as QBI
QBI is the net amount of qualified items of income, gain, deduction and loss from a qualified trade or business. The IRS says it generally reflects the deductible part of self-employment tax, self-employed health insurance and deductions for contributions to qualified retirement plans such as SEP and SIMPLE plans. So QBI is usually lower than Schedule C net profit.
Rental real estate can count. Rev. Proc. 2019-38 gives a safe harbor under which a rental real estate enterprise is treated as a trade or business for the QBI deduction. Rental real estate outside the safe harbor can still qualify if it is a section 162 trade or business.
Specified service trades or businesses
An SSTB is generally excluded from the definition of a qualified trade or business, unless taxable income is at or below the threshold (fully counts) or within the phase-in range (partly counts).
The Form 8995 instructions list SSTBs as businesses providing services in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services, plus investing and investment management, trading or dealing in securities, partnership interests or commodities, and any business whose principal asset is the reputation or skill of its employees or owners, such as income from endorsements or appearances.
How to claim it: Form 8995 or Form 8995-A
Use Form 8995, the simplified computation, if your 2026 taxable income before the QBI deduction is at or below $201,750 ($201,775 married filing separately, $403,500 married filing jointly) and you aren't a patron of an agricultural or horticultural cooperative. Otherwise, use Form 8995-A.
Form 8995-A has schedules for the harder cases. Schedule A handles an SSTB in the phase-in range. Schedule B is for owners who choose to aggregate several trades or businesses.
Accuracy matters more with this deduction. For individuals, the substantial understatement penalty normally applies when tax is understated by the greater of 10% of the correct tax or $5,000. For anyone claiming the Section 199A deduction, the trigger drops to the greater of 5% or $5,000. The penalty is 20% of the underpayment it applies to.
Aldro's team figures the QBI deduction as part of preparing the owner's return. One flat yearly price covers everything tax, including Schedule C and the personal return when it's needed for the business income.
Worked example
Example 1: a single sole proprietor has $80,000 of QBI in 2026 (after the deductible part of self-employment tax and other attributable deductions), no REIT or PTP income and no net capital gain. Taxable income before the QBI deduction is $70,000, under the $201,750 threshold, so Form 8995 applies. QBI component: 20% of $80,000 = $16,000. Income limitation: 20% of $70,000 = $14,000. Line 15 is the smaller, $14,000. That's above $400, so line 17 is $14,000. Example 2: a single taxpayer with a W-2 job also runs a side business they materially participate in, with $1,500 of QBI and $30,000 of taxable income before the QBI deduction. QBI component: 20% of $1,500 = $300. Income limitation: 20% of $30,000 = $6,000. Line 15 is $300. Because active QBI is at least $1,000, the minimum deduction on line 16 is $400, and line 17 is the greater figure, $400.
Common questions
What are the 2026 QBI deduction thresholds?
$201,750 for most filers, $201,775 for married filing separately and $403,500 for married filing jointly, measured on taxable income before the QBI deduction. The phase-in ranges end at $276,750, $276,775 and $553,500.
What is the $400 minimum QBI deduction?
For tax years beginning after December 31, 2025, taxpayers with at least $1,000 of aggregate QBI from businesses they materially participate in get a deduction of at least $400. Passive income doesn't count toward it. Both amounts are indexed for inflation after 2026.
Do I need to itemize to take the Section 199A deduction?
No. The IRS says it is available whether you itemize on Schedule A or take the standard deduction.
Should I file Form 8995 or Form 8995-A for 2026?
Form 8995 if taxable income before the QBI deduction is at or below $201,750 ($201,775 married filing separately, $403,500 married filing jointly) and you aren't an agricultural or horticultural cooperative patron. Otherwise Form 8995-A.
Do S corp salary or partnership guaranteed payments count as QBI?
No. Reasonable compensation from an S corporation, guaranteed payments from a partnership and employee wage income are all excluded from QBI.
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Sources
- IRS: Qualified business income deduction · checked October 31, 2026
- IRS: Rev. Proc. 2025-32 · checked October 31, 2026
- IRS: Form 8995 (2026 draft) · checked October 31, 2026
- IRS: Instructions for Form 8995 (2026 draft) · checked October 31, 2026
- IRS: Form 8995 (2025) · checked October 31, 2026
- IRS: Form 8995-A (2025) · checked October 31, 2026
- IRS: Accuracy-related penalty · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.