What are the QBI Phase Out Amounts?
The Qualified Business Income (QBI) deduction, introduced under Section 199A of the Internal Revenue Code, allows eligible taxpayers to deduct up to 20% of their QBI. However, this deduction begins to phase out for taxpayers with higher taxable incomes.
Phase-Out Thresholds for 2025
The QBI deduction starts to phase out for individuals whose taxable income before the QBI deduction exceeds certain thresholds. These thresholds are:
- Single, Married Filing Separately, Head of Household, Qualifying Surviving Spouse, Trust, or Estate: $197,300
- Married Filing Jointly: $394,600
Once taxable income exceeds these amounts, the QBI deduction is reduced based on a phase-out formula. The deduction is completely eliminated when taxable income reaches $247,850 for single filers and $495,700 for married filing jointly.
Who Must Use Form 8995-A?
Taxpayers who exceed the phase-out thresholds must use Form 8995-A to calculate their QBI deduction. This form is required if:
- You have QBI, qualified REIT dividends, or qualified PTP income or loss.
- Your taxable income before the QBI deduction exceeds $197,300 (for all filing statuses except married filing jointly) or $394,600 (for married filing jointly).
- You are a patron in a specified agricultural or horticultural cooperative.
What Is Included in QBI?
QBI includes qualified items of income, gain, deduction, and loss from trades or businesses effectively connected with the U.S. This includes income from:
- Partnerships (other than PTPs)
- S corporations
- Sole proprietorships
- Certain estates and trusts
Items that are not includible in QBI include:
- Amounts deducted under IRC 224 for qualified tips
- Items disallowed or limited under basis, at-risk, passive loss, or excess business loss rules
- Capital gains or losses and dividends/dividend equivalents
How to Calculate Taxable Income Before QBI Deduction
To determine if you are subject to the phase-out, you must calculate your taxable income before applying the QBI deduction. For Form 1040 or 1040-SR filers, this is calculated as:
Form 1040 or 1040-SR, line 11a minus Schedule 1-A, Part II, line 13, and then minus line 12e.
Source:
Form 8995-A
Form 8995
Disclaimer: Always verify with the official Federal or State Department of Revenue Forms and Instructions for the most accurate and up-to-date tax guidance.