Qualified Business Income (QBI) Deductions Post-OBBBA

“Qualified Business Income (QBI) Deductions Post-OBBBA,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Estate Planning Under the One Big Beautiful Bill Act (OBBBA)

• Part 1: Estate & Gift Tax and Charitable Contributions Under the OBBBA 
• Part 2: Qualified Opportunity Zone (QOZ) Planning Strategies Post OBBBA
• Part 3: How the OBBBA Impacts Qualified Small Business Stock (QSBS)
• Part 4: Qualified Business Income (QBI) Post-OBBBA — (this podcast)

Additional Resources

• R.1 – One Big Beautiful Bill Act
• IRS Fact Sheet

This is ACTEC Fellow Travis Hayes of Naples, Florida.

Introduction: Understanding the QBI Deduction

The Tax Cuts and Jobs Act of 2017 introduced a valuable tax break for owners of pass-through businesses. It allows eligible taxpayers to deduct up to 20% of their Qualified Business Income, otherwise known as QBI, which significantly reduces the business owner’s effective tax rate.

ACTEC Fellow Steve Gorin of St. Louis, Missouri, will continue the ACTEC Trust and Estate Talk’s dive into the recently enacted One Big Beautiful Bill Act and provide an overview of the QBI deduction and how the new budget reconciliation law has changed it. Welcome, Steve.

Key Limitations of the QBI Deduction

Steve Gorin:  Thank you, Travis. This deduction has two limitations that the 2017 law put in. One of them is what we call the wage limitation, and the wage limitation limits the deduction to the greater of 50% of W-2 wages with respect to the qualified trade or business or the sum of 25% of wages with respect to the business plus 25% of the Unadjusted Basis Immediately after Acquisition, which I abbreviate UBIA. For those people who are fans of the movie Die Hard, you can substitute UBIA for Yippee Ki-A, but don’t use the expletive afterwards.

Then the other limitation is if you have a Specified Service Trade or Business (SSTB) Disallowance, then the law says that you can’t take a deduction if you have those specified service trade or business. So that includes the fields of health, law, accounting, et cetera. It pulled a whole list from Code Section 1202. The Code Section 1202 did a list as a disqualifying business, engineers and architects, but the 2017 tax law said, no, we’re going to include them. So engineers and architects don’t have that disallowance and that’s because we lawyers are evil people, we’re doing Satan’s work, whereas architects and engineers are doing God’s work. They’re good people. So that’s why they get the full deduction. That’s the only explanation I could have it from the 2017 law.

Income Thresholds and Phase-Ins

This wage limitation and the specified service trade or business disallowance do not apply if the taxable income is below certain thresholds. And the initial threshold that they had was $315,000 for married filing jointly and $157,500 for other taxpayers. And that was indexed for inflation so that in 2025, it’s $394,600 for married filing jointly and $197,300 for other taxpayers. So anything below that range for taxable income, you get the full deduction without the wage limitation or the specified service trade or business disallowance.

The 2017 law also added in a phase in: for married filing jointly, that phase in was $100,000. So if your taxable income is below $394,600, then for 2025, you get the full deduction. If it’s somewhere between $394,600 and $494,600 for married filing jointly, then you will have the wage limitation and the specified service trade or business disallowance phased in. And then when you would reach $494,600 for married filing jointly, then those limitations and disallowance apply with full force. And then likewise for other returns for 2025, the range is $197,300 to $247,300.

Changes Under the One Big Beautiful Bill Act

Now the new tax law increased the range effective in 2026. Instead of being $100,000 range for married filing jointly, it’s now going to be $150,000 range for married filing jointly. And instead of the $50,000 range for other returns, it’s now going to be a $75,000 range for other returns.

Let’s say we adjust it for inflation and then did some rounding. The $394,600 for married filing jointly would go up some in 2026, let’s just say it’s going to be about $400,000. The range for married filing jointly would be $400,000 to $550,000 compared to the 2025 range of $394,600 to $494,600. So you have a larger group of taxpayers that’s going to be able to kind of benefit from that expanded range.

And then, similarly, for other taxpayers, the range for 2026 would be approximately $200,000 to $275,000 compared to the $197,300 to $247,300 for 2025. That is the impact of the law.

Fun Quiz Recap

Here’s a little quiz. How did the deduction change?

1. Increase the range for phasing the limitations,
2. Encouraging watched replays of Die Hard,
3. Increase the percentage deduction,
4. Made accountants and lawyers angelic

Now of course, if you answer number two and number four, then I certainly love that answer. Number one, of course, is the correct answer: now increase the percentage deduction. I say that because it actually did not increase the percentage deduction, but some earlier versions of the bill were going to increase it from 20% to 23% and those did not change it.

Pass-Through Entity Tax Deduction Update

And I have just one more bonus for you that’s slightly off topic. There’s a deduction for pass-through entity tax on the state income tax where pass-through entities elect to pay it. And that deduction evolved from 2020 through today. And there were some threats by the bill to possibly disallow that for various people, like evil businesses, just like us lawyers and accountants. And those limitations did not come in. We have good news on that pass-through entity tax deduction, as well as a little bit of a break for the 20% QBI deduction. Thank you very much.

Travis Hayes: Thank you very much. Thank you, Steve, for participating in the ACTEC Trust and Estate Talks podcast series on the One Big Beautiful Bill. And for educating us on its effect on the qualified business income deduction.

You may also be interested in:

• Section 199A and the 20% Deduction for Qualified Business Income (Dec 2018)
• Follow Up on the 2017 Tax Cuts and Jobs Act (Dec 2018)

This podcast was produced by The American College of Trust and Estate Counsel, ACTEC. Listeners, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. The material in this podcast is for information purposes only and is not intended to and should not be treated as legal advice or tax advice. The views expressed are those of speakers as of the date noted and not necessarily those of ACTEC or any speaker’s employer or firm. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. The entire contents and design of this Podcast, are the property of ACTEC, or used by ACTEC with permission, and are protected under U.S. and international copyright and trademark laws. Except as otherwise provided herein, users of this Podcast may save and use information contained in the Podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing, of this Podcast may be made without the prior written permission of The American College of Trust and Estate Counsel. If you have ideas for a future ACTEC Trust & Estate Talk topic, please contact us at ACTECpodcast@ACTEC.org. © 2018 – 2025 The American College of Trust and Estate Counsel. All rights reserved.