The One Big Beautiful Bill (OBBB) has made permanent one of the most valuable tax benefits for rental property owners: the 20% Qualified Business Income (QBI) deduction under Section 199A.

Why It Matters for Real Estate

Initially introduced by the Tax Cuts and Jobs Act (TCJA), the QBI deduction allows non-corporate taxpayers to deduct up to 20% of qualified business income from pass-through entities such as LLCs, partnerships, and S corporations.

For real estate investors, this means that net rental income from qualifying properties may be reduced by 20% for tax purposes—as long as the activity rises to the level of a trade or business.

Who Qualifies for the QBI Deduction?

Not every rental property automatically qualifies. To benefit, investors must generally meet these conditions:

• Entity Type – Income must come from a pass-through structure (LLC, partnership, or S-corporation) or directly from rental property reported on Schedule E.

• Trade or Business Standard – The rental activity must rise to the level of a trade or business, meaning it’s conducted with regularity and a profit motive. Occasional rentals or purely passive arrangements may not qualify.

• Rental Real Estate Safe Harbor – IRS guidance allows a safe harbor: if you perform at least 250 hours of rental services per year (management, maintenance, tenant work, etc.) and maintain proper records, the activity is presumed to qualify.

• Income Limits – Taxpayers below certain income thresholds automatically qualify, while those above must meet additional wage/property tests.

Key Enhancements Under OBBB

• Permanent status – The deduction no longer expires after 2025, giving property owners long-term certainty when planning and structuring investments.

• Expanded phase-in ranges – Higher income thresholds mean more investors can take advantage of the deduction before hitting wage or property-basis limitations.

• Minimum deduction – Beginning in 2026, even modest rental portfolios generating at least $1,000 of qualified income will yield a guaranteed $400 deduction.

What implications does this have for you?

• Cash Flow Planning: The permanence of the deduction allows investors to more accurately underwrite deals and project after-tax cash flow across property types, from multifamily to retail to industrial.

• Long-Term Certainty: Investors can confidently model after-tax returns over extended holding periods without concern that this significant deduction will disappear.

Bottom Line

Real estate investments provide significant tax benefits. With the proper knowledge and guidance, you can keep more of your rental income, increasing your overall net return. The 20% QBI deduction is just one of many advantages. Contact me if you want to learn about other benefits or analyze after-tax investment opportunities to see their actual returns.

Disclaimer: The information on this website is for general purposes only and is not tax advice. It should not replace professional tax guidance based on your circumstances. Consult a qualified tax professional for your specific situation before making decisions. We are not responsible for any tax consequences or penalties from using this information.