QBI Pass-Through Calculator 2026 — Section 199A Deduction

What Is the QBI Deduction?

The Qualified Business Income deduction, also called the Section 199A deduction or "pass-through deduction", was enacted by the 2017 Tax Cuts and Jobs Act and extended permanently by subsequent legislation. It allows owners of pass-through entities — sole proprietorships, partnerships, S-corporations, and certain rental real estate — to deduct up to 20% of their qualified business income when computing federal taxable income. The deduction is taken below the line (after AGI) on Form 1040 but doesn't reduce self-employment tax. Per IRS Section 199A Final Regulations and Form 8995/8995-A instructions, QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. Last updated May 2026.

2026 Phase-Out Thresholds

The QBI deduction has income-based limitations. For tax year 2026: $241,950 single / $483,900 married filing jointly is the threshold below which the full 20% deduction applies without restriction. Above the threshold, there is a phase-in range of $50,000 single / $100,000 MFJ. Specified Service Trade or Business (SSTB) categories — health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, and "any trade or business where the principal asset is the reputation or skill of one or more employees" — are fully phased out above $291,950 single / $583,900 MFJ. Non-SSTB businesses above the phase-in are subject to the W-2 wage and UBIA limitations instead. Per IRS Publication 535 and IRC §199A(d)(2).

W-2 Wage and UBIA Limit for Non-SSTB Above Phase-In

For non-SSTB businesses with taxable income above the phase-in threshold, the deduction is limited to the GREATER of: (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of UBIA (Unadjusted Basis Immediately After Acquisition of qualified property). UBIA is the original cost basis of depreciable real or personal property used in the business, including assets still in their depreciable recovery period. Per IRS Treasury Reg §1.199A-2, this limit is designed to favor businesses with significant employee payroll or capital assets. A consultant earning $300,000 with no employees and no equipment may get zero QBI deduction at high income; a manufacturer with the same profit but $80,000 in W-2 wages and $200,000 of equipment UBIA gets the full deduction.

The 20% of Net Capital Gains Cap

An overall ceiling applies: the QBI deduction cannot exceed 20% of (taxable income before QBI − net capital gains − qualified dividends). This prevents the deduction from offsetting investment income, which is already preferentially taxed. Example: a taxpayer with $100,000 QBI, $20,000 of qualified dividends, and $130,000 total taxable income gets a deduction capped at 20% × ($130,000 − $20,000) = $22,000, not the higher 20% of $100,000 ($20,000) which falls below the cap. The calculator applies this cap automatically. Per IRS Form 8995-A Schedule D guidance. Source: IRS Section 199A Final Regulations, IRS Form 8995/8995-A instructions, IRC §199A.