Qualified Business Income Deduction (QBI): A Guide for Tax Professionals

The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows many pass-through business owners to deduct up to 20% of their qualified business income on their tax return. This guide explains what QBI is, how to calculate the deduction, which businesses qualify (and don’t), and special considerations like real estate safe harbor rules.

What is QBI?

Qualified Business Income (QBI) refers to the net income generated by a qualified trade or business, excluding wages, capital gains/losses, dividends, and interest income.

It applies to pass-through entities, including:

Sole proprietorships
Partnerships
S Corporations
Some trusts and estates

The QBI deduction does not apply to C corporations.

The deduction is taken “below the line” and does not affect self-employment tax or adjusted gross income (AGI).

How to Calculate the QBI Deduction

The QBI deduction can be up to 20% of qualified business income, subject to several limitations. Here’s a simplified outline:

General Calculation:

Determine your QBI from all qualified trades or businesses.
Multiply by 20%.
Apply income thresholds and W-2 wage/UBIA (Unadjusted Basis Immediately After Acquisition) limits (if applicable).
Deduct any Specified Service Trade or Business (SSTB) limitations.
Compare with 20% of taxable income minus net capital gains — the lesser amount is the deduction.

Example:

Qualified business income (QBI): $100,000
20% × $100,000 = $20,000 potential deduction
Compare with 20% of taxable income (excluding capital gains; other exclusions may apply) to determine actual deduction.

Need help automating the calculation? Drake Tax software includes tools to calculate and track QBI across clients.

What Businesses Qualify for the QBI Deduction?

Most pass-through businesses qualify, but there are limitations based on income thresholds and whether the business is considered a Specified Service Trade or Business (SSTB).

Common Businesses That Qualify:

Retailers
Manufacturers
Restaurants
Construction companies
Real estate agents (if not SSTB)
Consultants (non-SSTB types)
Farmmain

What Businesses Do Not Qualify for the QBI Deduction?

If total taxable income exceeds IRS thresholds, owners of certain Specified Service Trades or Businesses (SSTBs) may not qualify.

Examples of SSTBs with limitations:

Health (e.g., physicians, dentists)
Law (e.g., attorneys, legal services)
Accounting
Consulting
Financial services (e.g., investment advisors, wealth managers)
Actuarial science
Performing arts
Athletics
Brokerage services
Any business where the principal asset is the reputation or skill of one or more employees

2023 & 2024 QBI Income Thresholds

If your income is below the threshold, no limitations apply — even for SSTBs.

If your income is above the threshold, wage and SSTB rules apply.

Tax Year	Married Filing Jointly	All Others
2023	$364,200	$182,100
2024	$383,900	$191,950

Note: A phaseout range applies above these thresholds.

QBI for Rental Real Estate: What is the Safe Harbor Rule?

Rental real estate businesses may qualify for the QBI deduction if they meet the IRS safe harbor test.

Safe Harbor Requirements:

Maintain separate books and records for each rental enterprise
Perform 250+ hours of rental services per year
Maintain contemporaneous records of hours, description, dates, and who performed services
Real estate used by the taxpayer as a residence for any part of the year does not qualify

If the safe harbor isn’t met, the taxpayer may still qualify if the activity rises to the level of a trade or business under Section 162.

Documentation & IRS Forms

To properly calculate and claim the QBI deduction, tax professionals should ensure the following:

Review Form 8995 or Form 8995-A
Confirm income thresholds are properly calculated
Ensure SSTB determinations are made accurately
For S Corps or partnerships, ensure W-2 wages and UBIA are reported correctly

Common QBI Issues Preparers Face

Multiple business types with mixed SSTB and non-SSTB income
Rental properties with passive income vs. trade or business activity
W-2 limitations where wages or asset basis is low
Aggregating businesses for combined reporting

Helpful Links & Resources

For professional tax preparers, mastering the QBI deduction is essential for maximizing savings for eligible clients.

For more information on how Drake Software can accurately calculate and track QBI, sign up for a free trial.