Expanded QBI Deduction Under OBBBA

The Qualified Business Income (QBI) deduction has been a valuable tax benefit for passthrough entities since it was introduced under the Tax Cuts and Jobs Act (TCJA). But with the original provision set to expire after 2025, many business owners have been uncertain about its future—until now. The recently passed One Big Beautiful Bill Act (OBBBA) brings significant updates, including a permanent extension and expanded eligibility for the QBI deduction.

A Permanent Deduction for Qualified Income

One of the most notable changes under OBBBA is the permanent extension of the 20% QBI deduction. This means that eligible owners of sole proprietorships, partnerships, S corporations, and certain trusts and estates can continue to deduct up to 20% of their qualified business income beyond the original 2025 expiration date.

Higher Income Thresholds, Broader Eligibility

Under prior law, the deduction began phasing out for certain service-based businesses—such as lawyers, consultants, and accountants—once income exceeded specific thresholds. OBBBA raises these income thresholds, allowing more high-income professionals to benefit from the deduction.

Additionally, the legislation broadens the scope of qualifying businesses. Some industries that were previously excluded, like specific financial services and real estate brokerages, now have a clearer path to qualify. OBBBA also clarifies that rental real estate enterprises may be eligible if they meet certain safe harbor requirements.

Adjusted Limits and Anti-Abuse Measures

The QBI deduction remains subject to limitations based on W-2 wages and capital investment in qualified property. However, OBBBA modifies these limitations with more generous inflation adjustments, allowing more businesses at higher income levels to qualify.

To address concerns about tax avoidance, the legislation includes new anti-abuse provisions. These rules target aggressive restructuring strategies—such as breaking up a business into separate entities solely to maximize the deduction—and aim to preserve the spirit of the tax benefit while limiting manipulation.

Final Thoughts

The changes to QBI under OBBBA are largely favorable to small business owners and passthrough entities. By making the deduction permanent and widening the net of who qualifies, the legislation offers long-term planning stability and potential tax savings. If you’re unsure how these updates affect your specific situation, now is a great time to consult with your DWD CPA.