How the 2025 One Big Beautiful Bill Act Changes the Qualified Business Income Deduction
Published on by Will Curdes in Tax Services
The QBI deduction: A quick refresher
The Qualified Business Income (QBI) deduction, introduced by the Tax Cuts and Jobs Act (TCJA), has been a major tax benefit for owners of pass-through businesses like sole proprietorships, partnerships, and S corporations. The QBI deduction allows eligible non-corporate taxpayers to deduct up to 20% of their qualified business income. This deduction is subject to several limitations, including income thresholds, wage and property tests, and special rules for specified service businesses or SSTBs (like law, health, and consulting).
Originally this deduction was set to expire after 2025, leaving business owners uncertain about their long-term tax planning. The 2025 One Big Beautiful Bill Act (OBBBA) introduces sweeping and permanent changes to the QBI deduction that will have a lasting impact on tax planning for pass-through entities.
What does the OBBBA change?
1. The QBI deduction is now permanent
The most notable change is that the QBI deduction no longer expires after 2025. The OBBBA removes the sunset provision, making this valuable deduction a permanent part of the tax code. This provides much-needed certainty for business owners and their advisors.
2. Higher phase-in thresholds for limitations
As noted above, the QBI rules provide what are called phase-in limitations. These limitations cover a range of income. If you are below the phase-in limitation, QBI is fully deductible. If you are within the phase-in limitations, a partial deduction is allowed and if you are over the phase-in limitations, no deduction is allowed.
Previously, the phase-in range for the wage and property limitations (and for the exclusion of SSTBs) was $50,000 above the income threshold for single filers and $100,000 for joint filers. The OBBBA increases these ranges to $75,000 and $150,000, respectively, and indexes them for inflation after 2026. This means more taxpayers will be able to claim the deduction, and higher-income taxpayers in service businesses may benefit before the deduction phases out.
3. A new minimum deduction for active businesses
The OBBBA introduces a new minimum deduction: If your aggregate QBI from all active qualified trades or businesses is at least $1,000, you will receive a minimum deduction of $400 (indexed for inflation after 2026), or your regular calculated deduction, whichever is greater. To qualify, you must materially participate in the business (as defined under the passive activity rules).
4. Core rules remain the same
- The deduction is still available only to non-corporate taxpayers (individuals, trusts, and estates with pass-through business income).
- The calculation remains the lesser of 20% of QBI (plus 20% of qualified REIT dividends and Publicly Traded Partnership income) or 20% of taxable income (less net capital gain).
- Wage and property limitations still apply, but the higher phase-in range means they’ll affect fewer taxpayers.
- The deduction is available whether you itemize or take the standard deduction.
- The updated version of the Pease limitation on itemized deductions, which returns in 2026 for higher-income taxpayers, does not affect the QBI deduction.
Example of QBI phase-in thresholds for income limitations
- For 2025, if a married couple filing jointly has taxable income (before the QBI deduction) less than or equal to $394,600, they are below the threshold. This means they can generally claim the full QBI deduction, and SSTBs are treated as qualified trades or businesses for purposes of the deduction.
- If their taxable income is more than $394,600 but not more than $544,600 (prior to OBBBA this upper limit was $494,600), they are within the phase-in range. The OBBBA increases this range for joint filers from $100,000 to $150,000. In this range, the QBI deduction for any business can be limited, and only an applicable percentage of income from an SSTB may be treated as qualified business income.
- If their taxable income is over $544,600 (prior to OBBBA this upper limit was $494,600), they are above the phase-in range. The OBBBA increases this upper income threshold for joint filers by $50,000. No QBI deduction is allowed for SSTB income above this upper limit of the range and other businesses are subject to the wage and property limitations.
At a glance: key changes
| Feature | Old Law (pre-2026) | OBBA (2025 and after) |
|---|---|---|
| Expiration Date | Expires after 2025 | Permanent |
| Phase-In Range for Limitations | $50,000 ($100,000 joint) | $75,000 ($150,000 joint), indexed |
| Minimum Deduction for Active QBI | None | $400 (if QBI ≥ $1,000), indexed |
| SSTB Exception Threshold | Same as phase-in range | Same, but higher phase-in range |
| Calculation Formula | 20% of QBI (with limits) | Unchanged |
| Eligible Taxpayers | Non-corporate only | Unchanged |
| Pease Limitation | Not specified | Does not apply |
Final thoughts
The 2025 One Big Beautiful Bill Act is a key improvement for the QBI deduction. By making it permanent, expanding the phase-in thresholds, and introducing a minimum deduction for active business owners, the OBBBA ensures that more entrepreneurs and small business owners can benefit from this important tax break for years to come.
Have questions about how the QBI Deduction impacts your business? Contact us today to consult with our team of top tax pros. You can also explore our expansive coverage of the OBBBA and what it means for individuals and businesses. As always, we’re here to help.
