Why the QBI Deduction’s Permanence Under OBBBA Matters for Businesses

The QBI deduction has always been a bit of a “maybe;” maybe it would stick, maybe it wouldn’t. Until now.

With the passage of the One Big Beautiful Bill Act (OBBBA), Congress has finally made the Qualified Business Income (QBI) deduction under IRC §199A a permanent fixture in the tax code, bringing much-needed certainty to pass-through business owners across a wide range of industries. But what does this really mean for you?

Spoiler alert: A lot — especially if you’re in construction, manufacturing, real estate or operate a professional service-based business.

The Basics: What the QBI Deduction Is (and Why It Exists)

Originally introduced in the 2017 Tax Cuts and Jobs Act (TCJA), the QBI deduction allows eligible pass-through entities (such as partnerships, S corporations and sole proprietorships) to deduct up to 20% of qualified business income on their individual tax returns. This was designed to level the playing field with the new 21% flat corporate tax rate.

• Eligible entities: Partnerships, S corporations, sole proprietorships and some trusts/estates
• Deduction equals the lesser of:
  • 20% of QBI
  • 20% of taxable income (excluding capital gains)
• Limitations apply: Especially for specified service trades or businesses (SSTBs), which include law, accounting, healthcare, and financial services

The original provision was set to expire at the end of 2025. Now, thanks to the OBBBA, that expiration date is gone.

Construction Industry: Major Wins with Planning Certainty

Construction pass-throughs have long benefited from §199A. Now they can plan with certainty.

Why it matters:

• Lower effective tax rates create margin flexibility: The permanent 20% QBI deduction can significantly reduce a contractor’s effective federal income tax rate. This frees up capital that can be reinvested into equipment, staffing and competitive bids.
• Helps owners fine-tune compensation and entity structure: QBI calculations are highly sensitive to wages and capital investment. Construction businesses can now strategically plan compensation for owners and key employees, while also evaluating whether an S corporation, partnership or sole proprietorship structure best aligns with tax efficiency.
• Cash flow advantages on long-horizon jobs: With many construction projects spanning multiple years, the ability to model tax benefits from the QBI deduction improves long-term planning. This is especially true when paired with tools like cost segregation or favorable accounting method choices.

For contractors and project managers, that’s real-world cash flow improvement with strategic tax structuring.

Read more on construction tax strategy in our Year-End Planning Guide.

Real Estate: The Biggest Winner in the Room

Since the inception of §199A, real estate has been one of the most QBI-friendly sectors. The OBBBA just sealed the deal.

Why this matters:  Need better reasons here too.

• Boosts after-tax returns on rental income: The permanent 20% deduction directly improves the profitability of rental operations, allowing investors to keep more of what they earn without changing their portfolio composition or risk profile.

• Supports smarter investment and ownership structures: With QBI intact, investors can structure holdings through pass-through entities that are both tax-efficient and flexible. This is especially valuable when layering in aggregation elections, active vs. passive participation rules and qualified property thresholds.

Aggregation elections, cost segregation studies and property-holding structures just became more important and more powerful.

Read our tax planning strategies for real estate investors.

Manufacturing: Durable tax relief that rewards reinvestment

Manufacturers have consistently qualified for the QBI deduction. And with its permanence under the OBBBA, that benefit just became a strategic planning staple.

Why this matters:

• Lowers the tax burden on domestic production income: The 20% deduction effectively reduces the federal tax rate on qualified business income. This increases available cash for reinvestment in equipment, workforce expansion or facility upgrades.
• Encourages capital investment and modernization: Since QBI deductions can be tied to UBIA, manufacturers can amplify their tax benefit by acquiring and placing new assets in service — especially when paired with cost segregation or bonus depreciation strategies.
• Supports ownership transition and succession planning: With more predictable tax outcomes, closely held manufacturing firms can better structure buy-sell agreements, shareholder redemptions and generational transfers while preserving tax efficiency for future owners.

For manufacturers focused on growth, efficiency and long-term competitiveness, the QBI deduction continues to be a powerful tool for shaping tax-smart decisions.

What This Means for Professional Service Businesses

If you operate in an SSTB (e.g., a law firm, medical practice or financial advisory), your deduction was likely phased out if you exceeded certain income thresholds. That doesn’t change with OBBBA.

What’s different now?

• Certainty. High-income professional service providers can now plan for the long term.
• Structuring options. Professional service providers might rethink their entity choice to either retain pass-through status or convert to C corporation based on comparative benefits.

For example, a high-income law firm structured as an S corporation will still face deduction phase-outs. But a mid-tier medical group under the income threshold can now confidently factor in the 20% QBI deduction when modeling long-term compensation strategies.

Explore how our JMCO tax advisors can help PSCs navigate entity structuring.

Tax Planning Takeaways: It’s Not Just About the Deduction

The QBI deduction’s permanence shifts the broader tax planning landscape.

• C Corp vs. pass-through choice: The 21% corporate tax rate still attracts attention, but §199A gives pass-throughs more staying power.
• Income smoothing strategies: Staying under phase-out thresholds may now be a permanent planning tactic, especially for SSTBs.
• Estate planning impact: The permanence of QBI also aligns with higher estate exemption thresholds (also extended under OBBBA).

Review your entity and estate planning strategy with JMCO advisors.

Ready to take advantage of QBI’s permanence?

The QBI deduction’s permanence under the One Big Beautiful Bill Act marks a major shift for pass-through tax planning.

While high-income personal service businesses still face phase-outs, the QBI deduction is now a permanent fixture and that opens doors for long-term strategic planning, entity structuring and growth-focused tax decisions.

Let’s talk about how this change affects your business. Contact a James Moore tax advisor today to begin planning for the long haul.

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