The Qualified Business Income (QBI) deduction, introduced in the 2017 Tax Cuts and Jobs Act, allowed many small business owners, sole proprietors, and pass-through entity members to deduct up to 20% of their qualified business income on their personal tax returns. With the passage of the One Big Beautiful Bill (OBBB), this popular deduction remains—but with significant modifications. 

The new legislation retains the core structure of the deduction but alters key thresholds, imposes stricter limitations, and narrows eligibility for certain high-income taxpayers. These changes may impact business owners’ take-home pay, entity structure decisions, and long-term tax strategies. 

Below, we break down the QBI deduction changes under OBBB and how they affect various taxpayer groups. 

What Is the QBI Deduction? (Quick Refresher)​

The QBI deduction is available to owners of pass-through businesses—sole proprietorships (Schedule C), S-corporations, partnerships, and certain trusts and estates. It allows eligible taxpayers to deduct up to 20% of their qualified business income, subject to several limitations, such as the W-2 wage and qualified property tests, as well as income thresholds. 

Under prior law, the deduction phased out for “specified service trades or businesses” (SSTBs) such as accountants, consultants, attorneys, and medical professionals once income exceeded: 

●$182,100 (Single) 

●$364,200 (Married Filing Jointly) 

These thresholds were indexed annually for inflation. 

What’s Changing Under OBBB?

Under OBBB, the QBI deduction has been preserved, but several important changes have been implemented:

1. New Income Thresholds and Phaseouts
● The QBI deduction begins to phase out for all filers once taxable income exceeds $200,000 (Single) or $400,000 (Married Filing Jointly).
● Unlike prior law, this phaseout applies more broadly, not just to SSTBs.
● The phaseout is steeper and more immediate: complete loss of the deduction occurs just $50,000 (S) / $100,000 (MFJ) beyond the threshold.
● For example, a single filer earning $250,000 may see none of their QBI deduction retained.

2. Expanded Definition of SSTBs
● The list of specified service trades or businesses now includes financial planners, digital creators, influencers, and any business primarily reliant on personal reputation or brand.
● This expansion hits solo professionals particularly hard, especially in the digital economy.

3. Stricter W-2 Wage and Property Limits
●For high earners, the ability to take the deduction is now more tightly tied to the wages paid to employees and the original basis of property held by the business.
●The formula:
● The deduction is limited to the greater of:
-50% of W-2 wages paid by the business, or
-25% of W-2 wages + 2.5% of the unadjusted basis of qualified property.

4. Entity Structure Implications
● Sole proprietors may now be at a greater disadvantage due to lack of W-2 wages.
●OBBB encourages shifting to S-Corp structures where reasonable compensation can be used strategically.
●Partnerships and multi-member LLCs should reconsider how they allocate guaranteed payments and whether they’re maximizing QBI-qualified wages.

5.Loss Carryovers and Aggregation Rules Tightened
●OBBB places new limits on loss carryovers from prior QBI deduction years, potentially reducing the tax benefit of net operating losses (NOLs).
●Rules around aggregating multiple businesses for QBI purposes are stricter—especially for SSTBs. Clear ownership and functional integration must be documented.[1] 

Impact on Small Business Owners

For many small business owners, the QBI deduction has served as a vital tax-saving tool. Under OBBB, they’ll need to take a more deliberate approach to entity setup, compensation strategy, and retirement contributions.

Key takeaways include:
● Income below $200,000 (S) / $400,000 (MFJ) still qualifies for the full deduction—planning to stay under these thresholds is essential.
● Many sole proprietors may consider forming S-Corps to generate W-2 wages and remain QBI-eligible.
●High-income professionals, including therapists, consultants, and solo practitioners, will face a steeper loss of benefit due to SSTB classification.
●Contribution to retirement plans (e.g., Solo 401(k)s, SEP IRAs) can help reduce AGI to remain QBI-eligible.
●Aggregating businesses may be more difficult—but still necessary for those running multiple activities with overlapping operations.

Impact on Realtors

Real estate agents and brokers—many of whom are structured as sole proprietors or single-member LLCs—have long benefited from the QBI deduction. OBBB does not classify real estate sales as SSTBs, but the changes still introduce new planning challenges.

Highlights for realtors:
●Agents earning more than $200k (S) or $400k (MFJ) will see QBI deduction phaseouts apply unless structured correctly.
●Realtors with S-Corps should ensure their W-2 compensation is “reasonable” but not excessive—this allows them to balance the W-2 wage requirement with the remaining QBI-eligible profit.
●Home-based expenses and mileage still reduce net income but also impact QBI calculation.
●Brokers who manage multiple agents or run teams may find it easier to satisfy the W-2 requirement.
●Realtors who own rental property should evaluate whether their rental qualifies as a “trade or business” for QBI purposes under the updated safe harbor.

Impact on Real Estate Investors

 OBBB keeps rental real estate eligible for QBI treatment, but the limitations have grown tighter.

Here’s what changes for real estate investors:
●Self-managed rentals may no longer qualify for the deduction unless they meet a higher bar for hours of activity, recordkeeping, and business-like operations.
●Investors using triple-net leases, or those who outsource all management, may no longer pass the “trade or business” test.
●For those above the phaseout threshold, only properties with sufficient basis and depreciation will generate a QBI deduction—make cost segregation studies a priority.
●Investors may want to group their properties for QBI aggregation, but rules now require more formal documentation and operational overlap.
●Passive loss limitations still apply; losses disallowed in prior years can impact current QBI eligibility.

Planning strategies include:
●Consider hiring a property manager and documenting oversight activities to meet safe harbor rules.
●Leverage cost segregation and bonus depreciation to boost basis and qualify under the property test.
●Stay under the income thresholds by delaying sales or accelerating retirement contributions.

Impact on Contractors and 1099 Workers

Contractors and gig workers operating under Schedule C are directly impacted by OBBB’s QBI updates. While many remain eligible for the deduction, stricter phaseouts and SSTB rules reduce flexibility.

Key changes:
●New industries classified as SSTBs (including personal brand-based businesses, influencers, fitness coaches, and financial educators) may be excluded from the QBI deduction entirely at higher income levels.
●Workers with no employees and no property will find it difficult to retain the deduction above the phaseout thresholds.
●Many gig workers will need to evaluate whether forming an S-Corp improves QBI access by providing W-2 wages.
●OBBB encourages keeping AGI under $200k (S) / $400k (MFJ) through deduction stacking—health insurance, retirement plans, and HSAs.

To retain the deduction:
●Use Trump Savings Accounts or retirement plans to reduce taxable income.
●Track income closely to determine if it makes sense to delay invoicing into next tax year.
Consider grouping multiple side businesses for aggregation—if operationally justifiable under IRS rules.

Impact on High-Income Earners

For high earners—especially those with pass-through income—the QBI deduction is one of the largest areas of erosion under OBBB.

High-income implications:
●The QBI deduction phases out between $200k and $250k (S) or $400k and $500k (MFJ), meaning even minor increases in income can eliminate the benefit entirely.
●Most SSTB owners earning above the upper threshold will lose the deduction completely.
●High-income business owners may rely more heavily on the W-2 wage and property tests—but these limits require larger teams or capital investments.
●Planning will shift toward charitable bunching, trust creation, and income smoothing across tax years to stay within deduction range.
This is also where entity structure and compensation modeling become critical—maximizing retirement contributions, limiting guaranteed payments, and adjusting distributions can all help manage QBI exposure.

The One Big Beautiful Bill preserves the QBI deduction in name but narrows its usefulness for many taxpayers—especially those earning above $200,000. The steeper phaseouts, new service business classifications, and stricter tests mean that what was once a “free” 20% pass-through deduction is now more difficult to capture.

Final Thoughts: QBI Planning in the OBBB Era

Every self-employed taxpayer, contractor, realtor, and investor should revisit their:
●Entity structure (should I be an S-Corp?)
●Compensation model (W-2 vs distributions)
●Capital asset strategy (property basis and depreciation)
●Income timing
●Aggregation potential
 

Want to see how these updates could impact your personal or business taxes?

📖 Read more about the OBBB
 🎓 Attend a free webinar
 📅 Schedule a 1-on-1 consultation
 

Reduced time period for carryovers (e.g., from indefinite to 5 years). Limiting the percentage of taxable income that can be offset (e.g., 80% limit). Stricter conditions on carryforward eligibility.