Form 1040

13a — Qualified Business Income Deduction Updated for tax year 2025

What this line means

The Section 199A deduction for qualified business income — up to 20% of your net business income from a pass-through entity (sole proprietorship, partnership, S corporation, or certain trusts). This deduction was created by the 2017 Tax Cuts and Jobs Act and is available through 2025. It is taken in addition to the standard or itemized deduction, not instead of it.

Does this apply to you?

  • You are self-employed and report business income on Schedule C
  • You receive income from a partnership or S corporation via Schedule K-1
  • You have rental income that qualifies as business income
  • You have qualified REIT dividends or publicly traded partnership income

Easy to overlook

The deduction applies to more than just Schedule C filers Partnership income, S corporation income, rental income, and even REIT dividends can qualify for the 20% deduction. Filers who receive K-1 income or REIT dividends often miss this because they do not think of themselves as “business owners.” The deduction is based on the type of income, not how active you are in the business. 1 [SOURCE: IRS Publication 535 — Qualified Business Income Deduction (Section 199A)]

Income limits and specified service trade restrictions Above $197,300 (single) or $394,600 (MFJ) in taxable income for 2025, the deduction starts getting limited for specified service trades or businesses (doctors, lawyers, consultants, accountants). The phase-out range is $50,000 for single and $100,000 for joint filers. Many high-income professionals assume they are completely excluded when they are actually in the partial phase-out zone. 2 [SOURCE: General filing pattern — QBI deduction missed by eligible filers]

Watch out for this

Not claiming the deduction at all. The QBI deduction is relatively new and does not appear on Schedule C or any business form — it is calculated on Form 8995 or 8995-A and entered directly on line 13a of the 1040. Filers who prepare their own returns sometimes complete their business schedules but never fill out Form 8995, leaving money on the table.

  • Form 8995 — Qualified Business Income Deduction Simplified Computation — for filers under the income threshold
  • Form 8995-A — Qualified Business Income Deduction — for filers above the income threshold
  • Line 15 — Form 1040 — Taxable income; the QBI deduction reduces this amount

Footnotes

  1. IRS Publication 535, Business Expenses, Chapter 12 (Qualified Business Income Deduction). https://www.irs.gov/pub/irs-pdf/p535.pdf ↩

  2. IRS Form 1040 Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩

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