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Who Qualifies for the QBI Deduction?

Three things determine QBI eligibility: business structure, business type, and taxable income. Get all three right and you qualify. Miss one and the deduction shrinks or disappears.

Priya Raman
By Priya Raman, Contributing Writer, Policy & Regulation
Updated June 17, 2026

Estimate your QBI deduction

Full Section 199A calculation with W-2 wage limits, SSTB phase-outs, and taxable-income cap. Educational estimate only. Consult a qualified CPA for your situation.

Open the QBI Deduction Calculator →

To qualify for the QBI deduction: you must have net income from a qualified trade or business operated as a pass-through entity (sole proprietorship, S corporation, partnership, or certain estate or trust). C corporations do not qualify. W-2 employees do not qualify. Above the income thresholds, SSTB owners phase out entirely; non-SSTB owners face a W-2 wage limit instead of losing the deduction. Rules are complex and change annually. Consult a CPA. This is educational information, not tax advice.

Business structures that qualify

Qualifying structures: sole proprietorships (including single-member LLCs taxed as sole proprietorships), S corporations (shareholders receive QBI allocations from the S corp), partnerships and multi-member LLCs taxed as partnerships, and certain trusts and estates. The common thread is that income flows to the individual taxpayer's Form 1040, where the deduction is calculated. C corporations are taxed at the entity level and are not eligible. The LLC structure itself is irrelevant; what matters is how the LLC is taxed.

The income threshold rule

Below the income threshold, most pass-through owners take the full 20 percent deduction with no additional tests. No W-2 wage calculation. No SSTB restriction. Thresholds adjust annually for inflation; confirm current-year figures with the IRS before relying on prior-year numbers. Below the threshold, even SSTB owners qualify on the same terms as everyone else.

SSTB owners and the phase-out

If your business is an SSTB and your taxable income exceeds the upper threshold, the QBI deduction goes to zero. Not reduced. Zero. Between the lower and upper thresholds, the deduction phases out proportionally based on how far into the range your income falls. Below the lower threshold, SSTB owners get the full deduction. See what is an SSTB for which professions are included and (importantly) which are not.

Non-SSTB owners above the threshold

If your business is not an SSTB and your income exceeds the threshold, you keep access to the deduction but the W-2 wage limit phases in. The deduction becomes limited to the greater of: (a) 50 percent of the W-2 wages paid by the business, or (b) 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis of qualified property. A sole proprietor with no employees and no property above the threshold can end up with a $0 deduction. See how to calculate the deduction for the full mechanics.

Rental property as a trade or business

Rental income may qualify as QBI if the rental activity constitutes a trade or business under Section 162 of the tax code. IRS Revenue Procedure 2019-38 provides a safe harbor for activities that log at least 250 hours of rental services per year with contemporaneous records. Triple-net leases and rentals of personal residences do not qualify for the safe harbor. See QBI for rental property for the full analysis.

Estimate your QBI deduction

Full Section 199A calculation with W-2 wage limits, SSTB phase-outs, and taxable-income cap. Educational estimate only. Consult a qualified CPA for your situation.

Open the QBI Deduction Calculator →

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Good to know

FAQs

Does an LLC qualify for the QBI deduction?

It depends on how the LLC is taxed. A single-member LLC taxed as a sole proprietorship qualifies. A multi-member LLC taxed as a partnership qualifies -- members report their share of QBI. An LLC taxed as an S corporation qualifies -- shareholders report their QBI from W-2 wages do not count as QBI but distributions do. An LLC taxed as a C corporation does not qualify. The LLC structure itself does not determine eligibility -- the tax classification does.

Can S corporation shareholders claim the QBI deduction?

Yes. S corporation shareholders include their share of S corporation income on their personal return as QBI. However, reasonable compensation that the S corporation pays the shareholder as W-2 wages is not QBI -- it is already deducted from the business income. Only the remaining pass-through income qualifies as QBI. This distinction is important for calculating both SE tax and the QBI deduction.

Does a real estate agent qualify for the QBI deduction?

Real estate agents and brokers are listed in the Treasury regulations as SSTBs if they provide brokerage services, which can affect eligibility above the income thresholds. Real estate investing (owning rental property) is a separate analysis and may qualify as a non-SSTB trade or business. The line between the two depends on the facts. Consult a CPA for your specific situation.

Is there a minimum income to claim the QBI deduction?

There is no minimum income floor -- you can claim the deduction on small amounts of QBI. However, the deduction cannot create a loss: it is limited to 20 percent of your taxable income (minus capital gains) in addition to the 20 percent of QBI limit. If your taxable income is very low or zero, the deduction will be limited accordingly.

Priya Raman
About the author
Priya Raman
Contributing Writer, Policy & Regulation, Encore Editorial

With a background in public administration, Priya Raman finds the important change usually hiding in subsection (c). She is precise to a fault and considers that a feature, not a bug.