Introduction
The qualified business income (QBI) deduction is calculated on Form 8995 or Form 8995-A, then reported on a single line of Form 1040.
On the 2025 Form 1040, that line is 13a. You are looking for the deduction, not your business income.
The confusion is understandable. Income starts on Schedule C or a Schedule K-1, moves to a separate calculation form, and only then reaches Form 1040. Self-employed individuals, partners, S corporation shareholders and LLC members all hit this maze.
The IRS reported 25.65 million returns claiming the deduction for tax year 2022, per IRS Publication 1304.
This guide traces the line, the supporting forms, the calculation, the 2026 limits and the reasons a deduction goes missing. QBI is a U.S. federal tax concept, so it matters to anyone with a U.S. filing obligation, including Australian-based owners of U.S. businesses.
Key Takeaways
- QBI is calculated on Form 8995 or 8995-A, then carried to Form 1040.
- It is based on net business income, not gross receipts.
- Taxable income, SSTB status, W-2 wages and losses can shrink the deduction.
- Always check the IRS form for your tax year.
Where Is QBI Located on Form 1040?
The line where the QBI deduction appears
The line is labelled "Qualified business income deduction from Form 8995 or Form 8995-A." It sits below adjusted gross income (AGI), as a deduction used to reach taxable income.
| Tax year | Line | Status |
|---|---|---|
| 2022 | 13 | Final |
| 2023 | 13 | Final |
| 2024 | 13 | Final |
| 2025 | 13a | Final |
| 2026 | 13b | IRS draft, not for filing |
Confirm the line against the 2025 Form 1040 before you file. The number shown is your calculated deduction, not your total qualified business income.
How the QBI information reaches Form 1040
The flow runs in one direction:
- Business activity produces net profit on Schedule C, or income on a Schedule K-1 from a partnership or S corporation.
- QBI adjustments and statements feed Form 8995 or 8995-A.
- The result goes to the QBI line on Form 1040.
Net profit is not automatically QBI. K-1 amounts also need taxpayer-level adjustments. Both forms say "Attach to your tax return," so keep the calculation with your filing.
What the deduction changes
- It reduces taxable income, not AGI.
- It does not reduce self-employment tax.
- It is separate from the standard deduction, so you can claim it with either the standard deduction or itemised deductions.
How to Calculate and Claim the QBI Deduction
Start with qualified business income
Gather net income, gains, deductions and losses from each eligible U.S. trade or business. Use Schedule C, Schedule K-1 (a partner's allocable share of partnership income, deductions and credits), and your records. A 1099 or total revenue figure is not QBI.
Remove non-qualifying items
Strip out items that do not count toward QBI:
- Capital gains and losses
- Dividends and non-business interest
- Employee wages
- Reasonable compensation from an S corporation
- Section 707(c) guaranteed payments
Then subtract business-attributable deductions, including:
- The deductible part of self-employment tax
- Self-employed health insurance
- Qualified retirement plan contributions
Determine the taxable-income limitation
Calculate taxable income before the QBI deduction. Do not use the post-deduction figure. The overall cap is:
20% × (taxable income before QBI − net capital gain)
For this calculation, net capital gain includes qualified dividends. The deduction is the smaller of this cap and the combined components.
Apply the calculation
The deduction has two components:
- Ordinary QBI: generally 20% of QBI
- REIT and PTP: 20% of qualified REIT dividends and qualified PTP income, with no wage or property limit
Above the income threshold, the ordinary component is limited to the greater of:
- 50% of W-2 wages
- 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property
Illustration (fictional figures):
- QBI after adjustments: $80,000
- Preliminary deduction (20%): $16,000
- Taxable income before QBI: $120,000, net capital gain: $0
- Cap: 20% × $120,000 = $24,000
- Final deduction: $16,000, the smaller amount, reported on Form 1040
Select the correct form and transfer the result
For 2025 returns, Form 8995 works if taxable income before the deduction is no more than $394,600 (married filing jointly) or $197,300 (all others), and you are not a patron of a specified agricultural or horticultural cooperative. Otherwise use 8995-A. See the Form 8995 instructions.
SSTBs can use Form 8995 below the threshold. Eligible aggregation is also allowed, though it cannot include an SSTB. Carry the final amount to Form 1040 and retain your workpapers.
Who Qualifies and What Counts as QBI?
Eligible business structures
| Owner or entity | Treatment |
|---|---|
| Sole proprietor | Individual potentially eligible |
| Partnership | Partners claim it; the partnership supplies information |
| S corporation | Shareholders claim it |
| LLC | Depends on tax classification |
| C corporation or employee | Ineligible |
Certain trusts and estates qualify. Non-resident aliens may also qualify when the items are effectively connected with a U.S. trade or business.
What counts and what does not
QBI is the net amount of qualifying income, gain, deduction and loss from an eligible trade or business included in taxable income.
Excluded from ordinary QBI:
- Capital gains and losses
- Dividends
- Non-business interest
- Employee wages
- S corporation reasonable compensation
- Section 707(a) and 707(c) payments to partners for services
Qualified REIT dividends and PTP income go through the separate component.
Specified service trades or businesses
SSTBs typically include businesses in:
- Health, law, accounting or actuarial science
- Performing arts, consulting or athletics
- Financial services, brokerage, investing and trading
Architecture and engineering are not treated as consulting.
Classification turns on the services actually provided. Under Treasury's own example, a chef's restaurant is not an SSTB merely because of the chef's reputation, but a separate cookware-endorsement business is.
Losses and rental activities
A net negative QBI produces no ordinary component that year. It carries forward as negative QBI from a separate business. The REIT/PTP component may still apply.
Rental real estate qualifies if it is a section 162 trade or business, or meets the Rev. Proc. 2019-38 safe harbour:
- Separate books for each enterprise
- 250+ hours of rental services per year (or in three of five consecutive years once the enterprise is four years old)
- Contemporaneous time records
- An annual statement attached to the original return
Residences, triple-net leases and some commonly controlled rentals are excluded from the safe harbour.
2026 QBI Limits and Special Rules
These figures apply to tax year 2026, generally filed in 2027, per Rev. Proc. 2025-32. They measure taxable income before the QBI deduction.
| Filing status | Threshold | Upper end |
|---|---|---|
| Single / head of household / other | $201,750 | $276,750 |
| Married filing separately | $201,775 | $276,775 |
| Married filing jointly | $403,500 | $553,500 |
The phase-in range is $75,000 for most filers and $150,000 for joint filers. For comparison, 2025 returns use $197,300 (others) and $394,600 (joint), with narrower ranges.
Key changes and rules:
- The One, Big, Beautiful Bill Act (Public Law 119-21) made the deduction permanent.
- From 2026, a $400 minimum applies if aggregate active QBI is at least $1,000 and you materially participate under section 469(h).
- Above the range, SSTB income gets no deduction. Within it, only an applicable percentage counts.
- Wage and property limits phase in gradually; they do not apply in full at the threshold.
Also check these items when they apply:
- Aggregation (50%+ common ownership, same tax year, no SSTB, and two of three relationship factors)
- Loss carryforwards
- REIT dividends, PTPs and cooperative income
Form 8995-A Schedules A to D cover these situations.
Why You May Not Be Getting the QBI Deduction
Eligibility and income problems
- You are an employee, not an owner
- The entity is taxed as a C corporation
- The income is excluded from QBI
- The business had a net loss
- The activity is not a trade or business
Calculation causes
- Taxable income above the threshold with SSTB limits
- Too few W-2 wages or too little qualified property
- The overall taxable-income cap
- Prior-year loss carryforwards
- Missing pass-through information
Filing and preparation errors
- Using the wrong version of Form 8995
- Not transferring the amount to Form 1040
- Omitting an attachment
- Outdated software
- Entering gross receipts instead of net QBI
Errors are common. A TIGTA review of 2019 returns found about $57 million in potentially erroneous QBI deductions across 12,980 returns.
If your QBI line is blank or lower than expected, work through the eligibility, calculation, and filing issues above first. VJM Global provides U.S. tax compliance and accounting support for business owners and international clients, including Australian owners with U.S. operations. That support can include reviewing records and pass-through information before filing. Results depend on your facts, so no deduction or savings is promised.
Frequently Asked Questions
Where does QBI go on Form 1040?
The calculated deduction moves from Form 8995 or 8995-A to the QBI line on Form 1040, line 13a for 2025. Verify the line on the current IRS form.
How do I calculate my QBI deduction?
Start with eligible net business income, remove excluded items, and take 20%. Then apply the taxable-income cap and any wage, property or SSTB limits, using Form 8995 or 8995-A.
Who qualifies for the qualified business income (QBI) deduction?
Owners of sole proprietorships, partnerships, S corporations and eligible LLCs generally qualify. C corporation shareholders and wage-only employees do not.
Why am I not getting the QBI deduction?
Common causes are ineligible income or entity type, a business loss, SSTB or income limits, low wages or property, missing forms and data-entry errors.
What counts as qualified business income for the QBI deduction?
It is net income from a qualifying U.S. trade or business. Capital gains, non-business interest, dividends and wages are excluded.
What are the QBI deduction limits and thresholds for 2026?
The thresholds are $201,750 (single and head of household), $201,775 (married filing separately) and $403,500 (joint). Phase-ins, SSTB status, wages, property and taxable income can still limit the deduction.
