Gifts & business · calculator
The qualified business income deduction in 2026
A deduction of up to 20% of pass-through business income, now permanent, with a new floor for small owners.
Qualified business income deduction
QBI deduction
$12,000
20% of business income, within 20% of taxable income
- Threshold$201,750
- 20% of QBI$12,000
Below the threshold a service business qualifies like any other. Net capital gains are not separated here.
The qualified business income deduction, section 199A, lets owners of sole proprietorships, partnerships, S corporations and many rental businesses deduct up to 20% of their qualified business income. Public Law 119-21 made it permanent and, from 2026, guarantees a minimum deduction of $400 to owners with at least $1,000 of qualified business income from active businesses (section 70105). Below the 2026 threshold of $201,750 of taxable income for most filers and $403,500 for married couples filing jointly (Rev. Proc. 2025-32 section 4.26), the deduction is simply the smaller of 20% of qualified business income and 20% of taxable income before the deduction, net capital gain removed. A freelance designer with $60,000 of business income and $70,000 of taxable income deducts $12,000. Above the threshold, limits based on W-2 wages paid and on the cost of business property phase in, and specified service businesses such as law, health and consulting lose the deduction gradually. The calculator handles the case under the threshold only, the one most small owners are in.
Checked by Radif Partners · Editorial policy · How we calculate
2026 thresholds
| Filing status | Threshold (taxable income) | Phase-in range ends |
|---|---|---|
| Married filing jointly | $403,500 | $553,500 |
| Married filing separately | $201,775 | $276,775 |
| All other returns | $201,750 | $276,750 |
What counts as qualified business income
Net income from a trade or business conducted in the United States through a sole proprietorship, a partnership, an S corporation, a trust or estate, including many rental activities that rise to the level of a business. It excludes wages earned as an employee, reasonable compensation paid to an S corporation owner, guaranteed payments to partners, capital gains, most interest and dividends. Qualified REIT dividends and publicly traded partnership income have their own 20% component.
Below the threshold: a simple computation
Under the threshold, the business type does not matter: a dentist and a plumber with the same income get the same deduction. Twenty percent of qualified business income is compared with twenty percent of taxable income before the deduction, minus net capital gain, and the smaller amount is deducted on Form 8995. With $60,000 of business income and $30,000 of taxable income, the deduction is $6,000, held down by the taxable income limit.
Rental real estate
Rental income counts as qualified business income only when the rental rises to the level of a trade or business. Many landlords with several properties, regular repairs and active management meet that standard; someone renting a single condo with a property manager may not. A landlord unsure of the status should read the IRS guidance on rentals under section 199A before claiming the deduction, since the answer depends on the facts of each rental.
Planning notes
Deductions that lower business income, such as bonus depreciation or a self-employed retirement contribution, also lower the QBI deduction, by 20 cents per dollar. Staying under the threshold can matter for service businesses near it, since crossing it starts the phase-out. The deduction is subtracted after AGI, like the Schedule 1-A deductions.
Sources: IRS Rev. Proc. 2025-32: 2026 inflation-adjusted items and 2025 items modified by Public Law 119-21 (October 9, 2025); Public Law 119-21 (July 4, 2025), Title VII, Subtitle A: sections 70101 to 70120 and 70424 to 70425; Form 1040-ES (2026), changes to QBID, read on October 11, 2026.