QBI Passive vs Active 2027
QBI deduction (Section 199A) allows 20% deduction on qualified business income for pass-through entities. Passive income (rental real estate, limited partnerships) generally excluded. This compares.
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Section 199A QBI deduction provides 20% deduction on qualified business income from pass-through entities. Phases out for specified service trades (SSTBs) above income threshold. Material participation typically required.
Active vs Passive Distinction
Active = material participation under IRC §469 (500+ hrs/yr, or 100+ hrs + most participation). Passive = rental real estate (default), limited partnerships, businesses where you don't actively manage. Passive generally excludes QBI deduction.
SSTB Phaseout
Specified Service Trade/Business (consulting, law, medicine, accounting, athletics, financial services, brokerage, etc.) lose deduction above threshold. 2026 estimate: single $191,950, MFJ $383,900. Full phaseout $241,950/$483,900.
W-2 Wages Limit
Above threshold, deduction limited to lesser of: 20% QBI or 50% of W-2 wages OR 25% W-2 wages + 2.5% UBIA. Pay yourself W-2 wages to optimize the limit.
Rental Real Estate Safe Harbor
Rev. Proc. 2019-38 safe harbor: rental real estate enterprise treated as trade/business for 199A if (1) separate books, (2) 250+ hours rental services, (3) maintain records. Cleans up active vs passive question.
Last updated May 2026. Sources: IRS QBI Deduction, Rev. Proc. 2019-38.