2018 QBI Deduction Threshold
For 2018, the QBI Deduction Threshold figures are $157,500 (Threshold, single filers), $315,000 (Threshold, joint filers), $207,500 (Phase-in range top, single filers) and 5 more figures below.
| Item | Single filers | Joint filers | Married filing separately |
|---|---|---|---|
| Threshold | $157,500 | $315,000 | $157,500 |
| Phase-in range top | $207,500 | $415,000 | $207,500 |
Effective 2018-01-01Source: Publication 535 (2018), Business Expenses (IRS)Verified 2026-09-04
Threshold
Phase-in range top
$157,500$415,000
One dot per column of the table, on a scale running from the smallest of these amounts to the largest. The scale is logarithmic, so that the amounts crowded at the low end stay far enough apart to read. The table states which dot is which.
Who it applies to
Individuals, trusts, and estates that claim the qualified business income deduction under section 199A for tax year 2018.
What changed this year, and why
For 2018, the IRS established income thresholds for the qualified business income (QBI) deduction under section 199A. The thresholds determine whether taxpayers must apply wage and capital limitations to their QBI deduction.
Common questions
- How do the thresholds and phase-in range work for the QBI deduction?
- If taxable income is at or below the threshold ($157,500 for single filers or $315,000 for joint filers), no reduction to qualified business income is required. Above the threshold but within the phase-in range (up to $207,500 for single filers or $415,000 for joint filers), the reduction is phased in gradually. Above the phase-in range top, the full reduction applies.
- What happens if taxable income exceeds the threshold?
- Above the threshold, the QBI deduction may be limited based on wages paid by the qualified trade or business and the unadjusted basis of qualified property held by the business. Below the threshold, these wage and property limits do not apply.
Above the threshold, the wage and property limits phase in
When taxable income before the QBI deduction falls between $157,500 and $207,500 for single filers, or between $315,000 and $415,000 for joint filers, the wage and property limits do not apply in full. Instead, the reduction is phased in gradually across this range. Taxpayers with taxable income below the threshold do not need to reduce their QBI at all, while those above the phase-in range must apply the full reduction. The phase-in range represents a transition zone where partial limitations apply rather than complete exemption or full restriction. This gradual approach ensures that taxpayers just above the threshold face smaller reductions than those significantly above it, creating a smooth transition between the two extremes.
Above the threshold but below the phase in range, the reduction is phased-in,
Publication 535 (2018), Business Expenses (IRS)
What the reduction is measured against
For 2018, the QBI deduction for each qualified trade or business is subject to wage and property limits when taxable income exceeds certain thresholds. The QBI deduction cannot exceed the greater of 50% of wages paid by the business, or 25% of wages plus 2.5% of the unadjusted basis of qualified property. These limits ensure that the deduction is connected to actual business investment in labor and capital rather than just business income. The wage and property limits only apply when taxable income before the QBI deduction exceeds $157,500 for single filers or $315,000 for joint filers. Below these thresholds, taxpayers can claim the full 20% deduction on qualified business income without regard to these wage and property restrictions. The limits create a connection between the tax benefit and the business's economic substance through its payroll and property investments.
QBI Component. Your QBI Component is generally 20% of your QBI from your trades or businesses. However, if your taxable income (before the QBI deduction) exceeds the thresh- old your QBI for each of your trades or busi- nesses may be partially or fully reduced to the greater of 50% of wages from the qualified trade or business, or 25% of wages plus 2.5% of the unadjusted basis on acquisition of
Publication 535 (2018), Business Expenses (IRS)
Specified service businesses above the range
When taxable income exceeds the threshold and phase-in range, specified service trades or businesses are generally excluded from the definition of qualified trade or business income. This means that no qualified business income, W-2 wages, or unadjusted basis of qualified property from the specified service business are taken into account when calculating the QBI deduction. The exclusion applies regardless of whether the taxpayer is a passive owner or materially participates in the business through a pass-through entity. However, there are exceptions for taxpayers with income below the phase-in range threshold, where an applicable percentage of the specified service business may still qualify for the deduction. Once taxable income reaches the top of the phase-in range, the complete exclusion takes effect for all specified service business income.
Specified service trades or busi- nesses generally are excluded from the definition of qualified trade or business income if the taxpayer's taxable income exceeds the threshold. Therefore, no QBI, W-2 wages, or UBIA of the qualified property from the specified trade or business are taken into account in fig- uring your QBI deduction.
Publication 535 (2018), Business Expenses (IRS)
The deduction is also capped by taxable income
The total QBI deduction cannot exceed a cap based on overall taxable income. Specifically, the deduction is limited to the lesser of the calculated QBI Component plus qualified REIT and PTP income, or 20 percent of taxable income minus net capital gain. This overall cap applies regardless of how much qualified business income a taxpayer earns from their trades or businesses. The limitation ensures that the deduction represents a meaningful portion of taxable income while excluding investment gains from the calculation. Taxpayers with substantial capital gains will find their deduction reduced proportionally, as the net capital gain amount decreases the income base available for the 20 percent calculation. This cap operates independently of the wage and property limits, creating a second layer of restriction on the total deduction amount.
However, the deduction is limited to the lesser of this amount or 20% of your taxable income minus your net capital gain.
Publication 535 (2018), Business Expenses (IRS)
Choosing to aggregate your businesses locks you in for later years
Under IRS rules for the 2018 Qualified Business Income Deduction, once a taxpayer chooses to treat two or more trades or businesses as a single aggregated group, that choice is not annual. The same grouping must be used on every future return unless a material change - such as a business being formed, acquired, disposed of, or ceasing operations - justifies a modification. If the aggregation is changed, the taxpayer must explain the change on the Schedule B (Aggregation of Business Operations) kept for their records. This prevents a taxpayer from regrouping businesses each year to maximize the deduction and instead locks in a consistent structure. The requirement applies at the federal level for all taxpayers claiming the Section 199A deduction, regardless of whether their taxable income falls above or below the $157,500 single or $315,000 joint threshold.
Note. If you have more than one aggregated group, attach additional Schedules B. Name the additional aggregations 2, 3, 4, and so forth.
Publication 535 (2018), Business Expenses (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Publication 535 (2018), Business Expenses (IRS)
- Threshold, single filers
Line 6. Threshold. Enter the threshold amount, $157,500 ($315,000 if married filing jointly).
- Threshold, joint filers
Line 6. Threshold. Enter the threshold amount, $157,500 ($315,000 if married filing jointly).
- Phase-in range top, single filers
than $157,500 but not $207,500 ($315,000 and $415,000 if married filing jointly), and line 10 is less than line 3. Otherwise, skip Part III.
- Phase-in range top, joint filers
than $157,500 but not $207,500 ($315,000 and $415,000 if married filing jointly), and line 10 is less than line 3. Otherwise, skip Part III.
- Threshold, married filing separately
18. Threshold. Enter $157,500 ($315,000 if married filing jointly)
- Phase-in range top, married filing separately
taxable income is more than $157,500 but not $207,500 ($315,000 and $415,000 if married filing jointly), and line 10 is smaller than line 3. Otherwise, skip Part III.
- QBI component rate
Your QBI Component is generally 20% of your QBI from your trades or businesses.
- Taxable income limit rate
However, the deduction is limited to the lesser of this amount or 20% of your taxable income minus your net capital gain.