Permanent QBI deduction and expanded thresholds reshape tax planning for developers, contractors, and property owners
Beginning in 2026, the Qualified Business Income (QBI) deduction undergoes major enhancements that will significantly impact how real estate developers, construction contractors, property owners, and investors plan and report their income. With the deduction now made permanent and expanded under the One Big Beautiful Bill Act (OBBBA), these changes offer long‑term tax‑saving opportunities for businesses and individuals across the real estate and construction sectors.
QBI deduction made permanent
One of the most consequential updates is the permanency of the deduction. For industries with long production cycles, such as multi‑year development or multi‑phase construction, the ability to plan around a stable tax benefit is invaluable. Owners can now confidently incorporate QBI strategies into long‑range financing, entity structuring, and project planning without worrying about expiration dates.
Deduction rate stays at 20%
Going forward, the QBI deduction stays at 20% of qualified business income, including REIT dividends and publicly traded partnership (PTP) income. This rate continues to deliver a meaningful lift in tax savings for developers, contractors, and rental real estate businesses.
Higher income thresholds
Under the new rules, more taxpayers retain access to the deduction due to expanded phase‑in ranges:
- $75,000 phase‑in window for single filers
- $150,000 phase‑in window for married filing jointly
This change helps owners with higher, fluctuating incomes, common in real estate and construction, maintain eligibility.
New $400 minimum deduction
Beginning in 2026, any active owner with at least $1,000 of QBI qualifies for an automatic $400 minimum deduction. This particularly benefits small contractors, early‑stage developers, and single‑property landlords.
Rental real estate still qualifies
Rental activities continue to qualify as long as they rise to the level of a trade or business. Unadjusted basis in property (UBIA) remains a key factor in maximizing allowable deductions.
Reduced SSTB limitations
Real estate and construction businesses generally avoid classification as specified service trades or businesses (SSTBs), but for those operating adjacent to SSTB activities, the expanded phase‑in ranges offer improved access to QBI benefits.
Strategic planning opportunities
- Optimize owner compensation for S‑corps
- Revaluate partnership guaranteed payments
- Use UBIA‑increasing strategies such as cost segregation
- Aggregate properties or entities when beneficial
- Plan income and expense timing strategically across development cycles
Why these changes matter
The real estate and construction sectors stand to benefit more than most. Income volatility, complex entity structures, and property‑based tax rules naturally align with the mechanics of the QBI deduction.
Bottom line
The 2026 QBI enhancements open the door to substantial, permanent tax savings for real estate and construction businesses. Now is the ideal time to evaluate entity structures, UBIA planning, compensation strategies, and long‑term project timing to ensure your business is positioned to maximize these benefits. Questions on QBI deductions for your business? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000
About the Author
Alec Wesson is a Senior Tax Associate and member of Keiter’s Real Estate and Construction niche team.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
