Quick answer: As a real estate agent you can generally deduct 20% of your net business income under Section 199A, and you are not a specified service trade or business — despite what you’ve probably been told. Below $201,750 of taxable income single, or $403,500 married filing jointly, the deduction is straightforward. Above those numbers it gets limited by the W-2 wages your business pays, which is where your entity choice starts to matter a great deal.
Three things changed for 2026: the deduction is now permanent, the phase-in range got wider, and there’s a new $400 floor.
I teach continuing education classes on this for agents, brokerage offices, and the Miami Realtor Association across South Florida. QBI produces more bad advice per square foot than any other topic I cover, so let’s start with the myth.
You are not an SSTB. Stop worrying about it.
Here’s what agents hear at sales meetings: the 20% deduction is for real businesses, not service providers — brokers are excluded.
That is wrong, and it has been wrong since 2018.
When Congress wrote Section 199A, it excluded “specified service trades or businesses” above certain income levels — health, law, accounting, consulting, athletics, financial services, and brokerage services. That last one caused genuine panic in this industry, because “brokerage” is right there in the name of what you do.
Then the IRS wrote the regulations. Reg. §1.199A-5(b)(2)(x) defines brokerage services as arranging transactions between a buyer and seller with respect to securities. It then says, in as many words, that this does not include services provided by real estate agents and brokers, or insurance agents and brokers.
Stock brokers are an SSTB. You are not. Property management isn’t either.
The practical effect is significant. An SSTB owner loses the deduction entirely above the top of the phase-in range. You never lose it that way. Your deduction can be limited by wages at higher incomes — that’s a different and much friendlier rule, and I’ll get to it.
What actually counts as QBI
QBI is the net profit of your business, not your gross commissions. Sales volume has nothing to do with it.
Start with commission income, subtract every business deduction, and the number left is roughly your QBI. Three things then come out that people forget:
- The deductible half of your self-employment tax
- Your self-employed health insurance deduction
- Your retirement plan contributions
That last one produces a real planning tension. A $20,000 solo 401(k) contribution lowers your QBI by $20,000, which shrinks your QBI deduction by $4,000. The retirement contribution is still worth making — you’re deferring tax on $20,000 to save tax on $4,000 — but the benefit isn’t the full face value, and it’s the kind of thing that should be modeled rather than assumed.
The same logic applies to your largest write-off. Whether you claim standard mileage or actual vehicle expenses, that deduction reduces net profit and therefore reduces QBI — which is one reason the method you pick is worth getting right.
What isn’t QBI: W-2 wages you receive (including your own salary from your PA), capital gains, interest and dividend income, and income earned outside the United States.
The three zones
Everything about QBI depends on your taxable income — not your business profit, not your gross commissions. Taxable income from your whole return, after deductions, including your spouse’s income if you file jointly.
Zone one: below $201,750 single, $403,500 joint. You take 20% of QBI. No wage tests, no property tests, no SSTB analysis. Most agents live here, and for them QBI is genuinely simple: profit times 20%, subtract from taxable income. File Form 8995, one page.
Zone two: the phase-in range. For 2026 this runs $75,000 above the threshold for single filers and $150,000 for joint — so up to $276,750 and $553,500 respectively. The wage limitation phases in gradually across that band. You don’t lose the deduction; part of it becomes subject to the wage test.
Zone three: above the range. The wage limitation applies in full. Your deduction is capped at the greater of 50% of the W-2 wages your business paid, or 25% of wages plus 2.5% of the unadjusted basis of qualified property.
One more ceiling applies at every level: the deduction can’t exceed 20% of your taxable income minus net capital gain. Sell an investment property at a large gain and your QBI deduction can shrink even though your business had a great year.
Why the wage limit is the entity question in disguise
Here’s the part that matters for a high-earning agent, and the reason QBI belongs in the same conversation as your entity choice.
If you’re a sole proprietor or single-member LLC, you pay yourself no W-2 wages. You take draws. That’s fine below the threshold, where wages are irrelevant. But above the phase-in range, 50% of zero is zero — and with no qualified property to fall back on, your deduction can be limited severely or entirely.
If you operate through a PA taxed as an S-corp, you’re on payroll. Your own salary is W-2 wages paid by the business, which creates the wage base the limitation measures against.
So for an agent whose taxable income has climbed past the threshold, the S-corp election stops being only a self-employment tax play and becomes a QBI-preservation play too.
Now the tension, which is where this gets genuinely interesting. Every dollar you pay yourself in salary:
- Reduces QBI by a dollar, since wages are a business expense and salary isn’t QBI to you
- Increases the wage base, raising the ceiling on what you can deduct
Too low a salary and the wage limit bites. Too high and you’ve shrunk the income the 20% applies to, while paying more payroll tax. There’s an optimum, it moves with your numbers, and it’s a real calculation rather than a rule of thumb. It also has to stay defensible as a reasonable salary — you can’t set the number purely for tax optimization.
This is the single best argument for having someone run your entity math annually rather than setting it once and forgetting it.
What changed for 2026
It’s permanent. Section 199A was scheduled to sunset after 2025. The One Big Beautiful Bill Act removed the expiration. You can plan around it now instead of wondering whether it survives.
The phase-in range widened. It went from $50,000 to $75,000 for single filers, and $100,000 to $150,000 for joint. More agents in that middle band keep more of the deduction than they would have under the old rules.
There’s a $400 floor. Starting in 2026, if you have at least $1,000 of QBI from a business you materially participate in, you get a minimum $400 deduction even when the regular calculation produces less. Both figures index for inflation after this year. It’s small, but it’s new, and part-time agents in particular shouldn’t leave it behind.
The mistakes I see every tax season
- Assuming you’re excluded because someone at a sales meeting said brokers don’t qualify. You qualify. This one costs thousands.
- Confusing gross commissions with QBI. The deduction is on net profit. A $400,000 producer with $150,000 of net income has $150,000 of QBI, not $400,000.
- Not knowing your net profit until April. QBI is calculated on a number you should be able to see in any month of the year — which is what a working bookkeeping system gives you.
- Forgetting the threshold is taxable income, spouse included. A joint filer whose spouse earns $200,000 can be much closer to the limits than their own business suggests.
- Aggressive deductions that overshoot. Every deduction cuts QBI too, so the last dollar of write-off saves you less than you think. Deduct everything legitimate, but don’t manufacture expenses.
- Sole proprietors at high income with no wage base, discovering the limitation in April when the entity decision needed making the previous January.
- Ignoring it entirely because it happens automatically in the software. It does — but the planning around it doesn’t.
The bottom line
If your taxable income is under the threshold, this is close to free money: 20% off your net business income, no strings. Take it and don’t overthink it.
If you’re above the threshold, or heading there, the wage limitation makes your entity structure and your salary level into a single connected decision — one worth running the numbers on before the year closes rather than after.
Either way, the deduction is calculated off your net profit, so the deductions you take and the estimated payments you make both move it.
Modelling the salary and entity question against the QBI thresholds is exactly the kind of work our planning and advisory service exists for, and the answer feeds straight into preparing the return.
If you want someone to model where your salary and entity structure land for QBI purposes this year, schedule a free consultation. For agents near the threshold, it’s usually the highest-value hour of the year.
Don Fallenbaum, M.Acc, CPA/CFF/ABV, is the Principal of Fallenbaum CPA & Advisors, LLC in Plantation, Florida. Known as “The Real Estate CPA,” he has spent 25+ years serving Realtors, real estate brokerage offices, and real estate investors, and teaches continuing education classes on entity structuring and taxes for real estate professionals.
This article is for general educational purposes and isn’t tax or legal advice for your specific situation. Talk to a qualified professional before making decisions about the QBI deduction.