QBI Deduction: W-2 Wages, UBIA, and Per-Business Limits

Start here if you want a clear yes/no on whether you qualify for the Section 199A Qualified Business Income (QBI) deduction. The QBI deduction may give you up to a 20% write-off of qualified business income from a pass-through business, but your final deduction is capped by the W-2 wages and UBIA limit.

As of September 7, 2025, the cap is the greater of:

• 50% of W-2 wages paid by that trade or business, or
• 25% of those W-2 wages + 2.5% of the UBIA (unadjusted basis immediately after acquisition) of qualified property.

This limit is applied separately for each trade or business, unless you make a valid aggregation election.

Quick eligibility (one-minute yes/no)

Answer these four questions:

1. Do you have income from a qualified trade or business run through a pass-through entity (sole proprietorship, partnership, or S corporation)?
2. Do you have QBI, plus reported W-2 wages and, if any, UBIA amounts for each trade or business on your Schedule K-1 or your own records?
3. Is your taxable income at or below the phase-in range?
   • For 2024, the phase-in starts at $191,950 (single) and $383,900 (joint); the full limit applies above $241,950 (single) and $483,900 (joint).
4. If above the phase-in, can your deduction pass the W-2 wages/UBIA cap for each trade or business?

• If you answered yes to all four, you likely qualify for a QBI deduction, subject to the cap described above.
• If you answered no to any, read the sections on disqualifiers, alternatives, and how to improve your chances.

Core rule: the W-2 wages and UBIA cap

• The cap equals the greater of:
  • 50% of W-2 wages, or
  • 25% of W-2 wages + 2.5% of UBIA of qualified property.
• UBIA means the property’s original cost basis immediately after acquisition, before depreciation.

• Qualified property is tangible, depreciable property used in the business, generally with a recovery period of 10 years or more. Improvements count as separate property with their own 10-year window.
• The test is applied to each trade or business. Under certain conditions you may aggregate multiple businesses and apply the limit to combined wages and UBIA.

Key takeaway: the cap can be driven by wages for labor-heavy businesses and by UBIA for capital-heavy businesses.

How to check eligibility — step by step

1) Confirm your business type and records
– You need pass-through income and QBI for each trade or business.
– Your pass-through entity should issue a Schedule K-1 reporting your share of QBI items, W-2 wages, and UBIA.
– If W-2 wages or UBIA aren’t reported for a trade or business (or an aggregated group), they’re presumed zero, which can reduce your QBI deduction.

2) Find your income range
– If your taxable income is below the phase-in range, the wage/property cap may not limit you.
– If you’re in or above the phase-in range (2024 thresholds: $191,950/$383,900; full limit at $241,950/$483,900), the cap fully applies.

3) Compute W-2 wages for each business
– W-2 wages include amounts subject to federal income tax withholding.
– The IRS accepts specific methods (e.g., unmodified box method or tracking methods) to determine the correct wage figure for the limitation.

4) Compute UBIA for each business
– Use the property’s unadjusted basis immediately after acquisition (original cost) for qualified property still used by the business.
– Partnership rules (including Section 754 elections) can affect UBIA after interest transfers; review these with your partnership and tax advisor.

5) Apply the cap by business (or aggregated group)
– Compare 50% of W-2 wages to 25% of W-2 wages + 2.5% of UBIA.
– Use the greater number as your cap for that business. Your QBI deduction for that business cannot exceed this cap.

Concrete examples

• Services firm with strong payroll, little property:
  • W-2 wages = $400,000, UBIA = $20,000
  • 50% wages = $200,000
  • 25% wages + 2.5% UBIA = $100,000 + $500 = $100,500
  • Cap = $200,000
• Real estate investor with minimal payroll but large property:
  • W-2 wages = $20,000, UBIA = $4,000,000
  • 50% wages = $10,000
  • 25% wages + 2.5% UBIA = $5,000 + $100,000 = $105,000
  • Cap = $105,000
  • This shows how the UBIA component helps capital-heavy businesses.
• Two related businesses that may aggregate:
  • If each alone has poor wage/property mixes, a valid aggregation can combine W-2 wages and UBIA to improve the cap. The aggregation election must meet IRS criteria and be filed on a timely return.

Detailed requirements you must meet

• Have QBI from a qualified trade or business for the year.
• Maintain accurate W-2 wage records using an IRS-approved method.
• Track UBIA for qualified property (original cost of tangible, depreciable assets).
• Receive correct Schedule K-1 reporting from relevant pass-through entities.
• If you aggregate businesses:
  • Meet IRS rules (common ownership and related business factors).
  • Remain consistent each year once elected.
• File the appropriate QBI form:
  • Form 8995 (simplified) or Form 8995-A (complex/high-income cases).

Disqualifying or limiting factors to watch

• Missing W-2 wages and UBIA on your K-1: treated as zero, reducing the deduction.
• High income without enough wages or property: above the phase-in range the cap can eliminate much of the benefit.
• Late or invalid aggregation: failure to timely elect forces separate application of the cap and can lower the deduction.
• Asset sales/transfers that reduce UBIA: timing/disposals can shrink your cap.
• Pass-throughs that fail to provide detail: owners cannot substitute estimates for missing wage or UBIA figures for cap purposes.

How to improve your chances this year

• Strengthen payroll where it fits the business: increasing W-2 wages raises both the 50% and 25% wage components. Ensure changes reflect real business needs, not just tax planning.
• Acquire qualified property: buying and placing in service tangible, depreciable assets increases UBIA, lifting the 2.5% piece of the cap. Improvements can also help.
• Consider aggregation if eligible: when businesses share common ownership and related activities, a proper aggregation election can create a more favorable blend of wages and UBIA. File on a timely return and remain consistent after electing.
• Tighten reporting with your pass-throughs: get K-1s early and ensure they show QBI, W-2 wages, and UBIA clearly.
• Review partnership elections: Section 754 elections can affect UBIA after transfers—coordinate with your partnership and tax advisor.

Alternatives if you’re not eligible this year

• File the QBI forms to reflect zero, then plan for next year by adjusting payroll, asset strategy, or aggregation where facts allow.
• Monitor legislative changes: the QBI deduction applies to tax years starting after December 31, 2017 and ending on or before December 31, 2025. As of mid-2025, Congress is discussing extensions/changes but nothing final has passed. Keep watching for updates.

Reporting checklist and official resources

• Forms to file:
  • Form 8995 (Qualified Business Income Deduction Simplified Computation). Access: https://www.irs.gov/forms-pubs/about-form-8995.
  • Form 8995-A (Qualified Business Income Deduction) for complex/high-income cases. Access: https://www.irs.gov/forms-pubs/about-form-8995-a.
• Guidance and FAQs:
  • IRS official page with rules and examples: https://www.irs.gov/newsroom/qualified-business-income-deduction.
• Records to keep:
  • Payroll reports that substantiate W-2 wages using an IRS-acceptable method.
  • Fixed asset schedules showing UBIA and in-service dates.
  • Aggregation statements, if you elected to aggregate.
  • Schedule K-1s from each pass-through with QBI, W-2 wages, and UBIA completed.

Common scenarios and quick calls

• Rental property through a partnership with large buildings and modest staff:
  • The 2.5% UBIA factor may carry your cap even if W-2 wages are low.
• Consulting S corp with high payroll and light assets:
  • 50% of W-2 wages will likely determine the cap. Ensure payroll timing and year-end bonuses are properly recorded and paid by the business.
• Two related trades with uneven wages/property:
  • An aggregation election can even out the cap, but only if made correctly and on time.

Key dates and outlook

• Under current law, the QBI deduction is in effect through end of 2025. Proposals in 2024–2025 might change limitations for high earners, but no changes are law yet. Track developments for year-end planning.

Expert note:
– W-2 wage calculations must follow accepted IRS methods that align with your payroll systems.
– UBIA is based on original cost (not net of depreciation). For partnerships, inside-basis mechanics and Section 754 elections can change outcomes after transfers—coordinate early.
– Analysis by VisaVerge.com indicates owners who secure correct K-1 reporting and, where suitable, aggregate businesses on a timely return avoid the most common reductions caused by missing wage or UBIA data.

Final yes/no recap

• Yes — you likely qualify if you have QBI from a pass-through, your taxable income is within workable ranges, and your W-2 wages and/or UBIA support the cap for each business (or aggregated group).
• No — you may not receive a meaningful QBI deduction if you lack reported W-2 wages and UBIA (treated as zero), your income is high without enough wages or property, or you miss a valid aggregation election when it could help.

Action steps this week

1. Pull your K-1s and verify that QBI, W-2 wages, and UBIA are present for each business.
2. Map your 2025 taxable income vs. the phase-in thresholds.
3. Run two cap tests for each business:
   • 50% of wages, and
   • 25% of wages + 2.5% UBIA.
4. Decide early on payroll, asset purchases, or aggregation that fit your real business needs and your compliance timeline.