Qualified Business Income (QBI) Deductions Post-OBBBA

Summary

---

ACTEC Trust & Estate Talk

Episode: Qualified Business Income (QBI) Deductions Post-OBBBA

Date: September 23, 2025
Guest: Steve Goran, ACTEC Fellow, St. Louis, Missouri
Host: Travis Hayes, ACTEC Fellow, Naples, Florida

---

Episode Overview

This episode dives into the evolving landscape of the Qualified Business Income (QBI) deduction following the passage of the “One Big Beautiful Bill” (OBBBA). The discussion centers on how the new budget reconciliation law has modified the QBI deduction rules, with a focus on the expanded phase-in ranges and implications for pass-through business owners. The conversation offers practical insights, key considerations, and a touch of humor for wealth planners and tax professionals.

---

Key Discussion Points & Insights

1. Fundamentals of the QBI Deduction

• QBI allows qualified owners of pass-through businesses to deduct up to 20% of their qualified business income, reducing their effective tax rate.
• Original framework established by the 2017 Tax Cuts and Jobs Act.

Quote:
“It allows eligible taxpayers to deduct up to 20% of their qualified business income, otherwise known as QBI, which significantly reduces the business owner's effective tax rate.”
— Travis Hayes (00:38)

2. Two Major Limitations on QBI Deduction

• Wage Limitation: Deduction capped at the greater of either:
  • 50% of W-2 wages paid by the business; or
  • 25% of W-2 wages plus 25% of the business’s unadjusted basis immediately after acquisition (UBIA).

Quote:
“One of them is what we call the wage limitation... the greater of 50% of W-2 wages... or 25% of wages plus 25% of the unadjusted basis immediately after acquisition, which I abbreviate UBIA.”
— Steve Goran (01:16)

• Specified Service Trade or Business (SSTB) Disallowance:
  • Deduction is generally disallowed for income from certain service professions (health, law, accounting, consulting, etc.), except for engineers and architects.

Quote (humorous):
“We lawyers are evil people… whereas architects and engineers are doing God's work. They're good people. So that's why they get the full deduction.”
— Steve Goran (02:20)

3. Income Thresholds and Phase-In Ranges

• Wage limitation and SSTB disallowance do not apply if taxable income is below certain thresholds.
• 2025 Indexed Thresholds:
  • Married Filing Jointly (MFJ): $394,600
  • Other taxpayers: $197,300
• Full deduction below these levels.
• Phase-in applies to income between thresholds and upper limits, which previously were:
  • MFJ: $394,600–$494,600 (a $100,000 phase-in range)
  • Others: $197,300–$247,300 (a $50,000 range)

4. OBBBA Changes: Expanded Phase-In Ranges (Effective 2026)

• For 2026 & beyond:
  • MFJ phase-in range grows to $150,000
  • Other taxpayers’ range increases to $75,000
• With inflation adjustment, estimated ranges:
  • MFJ: Roughly $400,000–$550,000
  • Others: Roughly $200,000–$275,000

Quote:
“So you have a larger group of taxpayers that's going to be able to kind of benefit from that expanded range.”
— Steve Goran (05:02)

5. What Didn’t Change

• QBI Percentage Remains 20%:
  • Earlier legislative drafts proposed increasing it to 23%, but this was not enacted.
• Pass-Through Entity State Tax Deduction:
  • Remains available; potential limitations debated but not implemented.

Quote:
“Some earlier versions of the bill were going to increase it from 20% to 23% and those did not change it.”
— Steve Goran (06:11)

6. Lighthearted Moments & Quiz

• Steve interjects humor referencing “Die Hard” and a playful “pop quiz” to keep the topic engaging.

Memorable Moment:
“For those people who are fans of the movie Die Hard. You can substitute UBIA for yippee ki yay, but don't use the expletive afterwards.”
— Steve Goran (01:31)

“Now, of course, if you answer number two or number four, then I certainly love that answer. Number one, of course is the correct answer.”
— Steve Goran (06:06)

---

Important Segment Timestamps

| Timestamp | Segment Description | |-----------|-------------------------------------------------------------------------------------------| | 00:38 | Introduction to QBI, review of 2017 law | | 01:16 | Wage limitation and specified service business exclusion explained | | 03:45 | 2025 Indexed thresholds and phase-in range mechanics outlined | | 04:50 | OBBBA expansion of phase-in ranges for 2026+ | | 06:09 | Pop quiz and clarifications on what did/didn’t change in the new law | | 06:40 | Update on pass-through entity state tax deductions |

---

Key Takeaways

• The “One Big Beautiful Bill” expands the phase-in thresholds for QBI deduction limitations, allowing more taxpayers to benefit.
• The QBI deduction percentage stays at 20%—no increase to 23%.
• State pass-through entity tax deduction remains available despite past threats of limitation.
• Engineers and architects are still uniquely favored among service businesses for full QBI deduction eligibility.
• Practical impact for wealth planners: review client income levels against new, wider phase-in ranges for optimal QBI deduction planning.

---

For more expert analysis on trust, estate, and wealth planning issues, listen to the ACTEC Trust & Estate Talk podcast or consult ACTEC.org.

Transcript

[A]

Qualified Business Income Deductions after the One Big Beautiful Bill that is the subject of today's ACTEC Trust and Estate Talk.

[B]

Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now our ACTEC Fellow host with today's topic.

[A]

This is Actech fellow Travis Hayes of Naples, Florida. The Tax Cuts and Jobs act of 2017 introduced a valuable tax break for owners of pass through businesses. It allows eligible taxpayers to deduct up to 20% of of their qualified business income, otherwise known as QBI, which significantly reduces the business owner's effective tax rate. ACTEC Fellow Steve Goran of St. Louis, Missouri will continue the ACTEC Trust and Estate talks, dive into the recently enacted One Big Beautiful Bill act and provide an overview of the QBI deduction and how the new budget reconciliation law has changed it. Welcome, Steve.

[C]

Thank you, Travis. So this deduction has has two limitations that the 2017 law put in. One of them is what we call the wage limitation. And the wage limitation limits the deduction to the greater of 50% of W2 wages with respect to the qualified trader business or the sum of 25% of wages with respect to the business plus 25% of the unadjusted basis immediately after acquisition, which I abbreviate ubia. For those people who are fans of the movie Die Hard. You can substitute UBIA for yippee ki yay, but don't use the expletive afterwards. Okay then the other limitation is if you have a specified service, trade or business, then the law says that you can't take a deduction if you have those specified service trades or business. That includes the fields of health law, accounting, etc. They pulled a whole list from code section 1202. The code section 1202 did a list as a as a disqualifying business engineering and engineers and architects. But the 2017 tax law said no, we're going to include them. So engineers and architects don't have that disallowance. And that's because we lawyers are evil people. We're doing Satan's work, whereas architects and engineers are doing God's work. They're good people. So that's why they get the full deduction. That's the only explanation. I could have it from the 2017 law. So anyway, this wage limitation and the specified service trader business disallowance do not apply if the taxable income is below certain thresholds. And the initial threshold that they had was 315,000 for married filing jointly and 157,500 for other taxpayers. And that was indexed for inflation so that in 2025, it's $394,600 for Mary filing jointly and $197,300 for other taxpayers. So anything below that range for taxable income, you get the full deduction without the wage limitation or the specified service trader business disallowance. The 2017 law also added in a phase in. So for Mary finally joined that phase in was $100,000. So if your taxable income is below $394,600, then for 2025, you get the full deduction. If it's somewhere between $394,600 and $494,600 for Mary filing jointly, then you, you will have the wage limitation and the specified service trader business disallowance phased in. And then when you would reach 494,600 for Mary filing jointly, then those limitations and disallowance apply with full force. And then likewise for other returns for 2025, the range is 197,300 to 247,300. So now the new tax law increased the range effective in 2026, instead of being $100,000 range for married filing jointly, it's now going to be $150,000 range for married filing jointly. And instead of the $50,000 range for other returns, it's now going to be a $75,000 range for other returns. So let's say we adjust it for inflation and then did some rounding. So the 3946 for Mary filing jointly would go up some in 2026. So let's just say it's going to be about $400,000. So the range for Mary filing jointly would be 400,000 to $550,000 compared to the 2025 range of 394. 6 to 494 6. So you have, you have a larger group of taxpayers that's going to be able to kind of benefit from that expanded range. And then similarly for other taxpayers, the range for 2026 would be approximately 200,000 to $275,000 compared to the 197,300 to 247,300 or for 2025. So that is the impact of the law. So here's a little quiz how did the deduction change? Number one, increase the range for phasing and limitations. Number two, encouraging watched replays of die Hard. Number three, increase the percentage deduction and number four made accountants and lawyers angelic. Now of course, if you answer number two or number four, then I certainly love that answer. Number one, of course is the correct answer. Now increase the percentage deduction. I say that because it actually did not increase the percentage deduction, but some earlier versions of the bill were going to increase it from 20% to 23% and those and those did not change it. And I have just one more bonus for you that's slightly off topic. There's a deduction for pass through entity tax on the state income tax where pass through entities elect to pay it. And that deduction kind of evolved from 2020 through today and there were some threats by the bill to possibly disallow that for for various people like evil businesses just like us lawyers and accountants. And those limitations did not come in. So we have good news on that passion entity tax deduction as well as a little bit of a break for the 20% QBI deduction. Thank you very much.

[A]

Thank you Steve, for participating in the ACTEC Trust and Estate Talks podcast series on the one big beautiful bill and for educating us on its effect on the qualified business income deduction.

[B]

Thank you for listening to this episode of ACTEC Trust and Estate Talk, the podcast series about wealth planning matters from the American College of Trust and Estate Council. To find an ACTEC lawyer near you, visit actec.org Please subscribe to this series and leave us a rating or a review.