How to Fill Out Form 8995 for the QBI Deduction

Form 8995 is the simplified IRS form for claiming the qualified business income deduction under Section 199A, worth up to 20% of your pass-through business income. To fill out Form 8995, you list each qualified trade or business and its net income in Part I, add any qualified REIT dividends and publicly traded partnership income in Part II, and take the smaller of 20% of your combined qualified business income or 20% of your taxable income minus net capital gains as your final deduction on Line 15. You can use this shorter form only if your taxable income before the QBI deduction is at or below $201,750 for 2026 ($403,500 married filing jointly, $201,775 married filing separately).¹ Above those thresholds, the IRS routes you to the longer Form 8995-A, which layers on W-2 wage and property basis limits.²

What to Gather Before You Start

The form itself is short, but the numbers that feed it live elsewhere. Pull these together first:

Schedule C for each sole proprietorship, showing net profit or loss.
Schedule K-1 from any partnership (Form 1065) or S corporation (Form 1120-S) you own an interest in. Section 199A income is reported in Box 20 for partnerships and Box 17 for S corps, with a specific code.³
Statements showing qualified REIT dividends and qualified publicly traded partnership income.
Any prior-year QBI loss carryforward, which appears on last year’s Form 8995.
A draft of your Form 1040 so you know your taxable income before the QBI deduction.⁴

Remember that QBI is a net figure. Before it lands on Form 8995, business income has already been reduced by the deductible portion of self-employment tax, self-employed health insurance premiums, and contributions to SEP or SIMPLE retirement plans.⁵ Wages you earn as an employee, C corporation income, capital gains, interest, and non-qualified dividends are not QBI.

Part I: List Each Business and Total Your QBI

Lines 1 through 5 of Part I give you five rows to list each qualified trade or business. For each row you enter:

Column (a): the business name.
Column (b): its taxpayer identification number. Sole proprietors without a separate EIN use their Social Security number.⁴
Column (c): the qualified business income or loss from that business.

List every qualified business separately, even the ones with losses. The form then asks you to combine the column (c) figures. If you have a QBI loss carryforward from the prior year, that reduces the total on Line 3.

Line 4 is the total qualified business income. Line 5 multiplies it by 20%. That figure is your preliminary deduction from operating businesses, before REIT and PTP income are added and before the income-based cap is applied.

If your combined QBI comes out negative, stop and take no deduction this year. The negative total carries forward and offsets next year’s positive QBI before the 20% calculation.³ The carryforward is only for the QBI calculation; the underlying business loss still reduces your adjusted gross income as it normally would on Schedule C or your K-1 entries. One trap: a large loss from one business can wipe out the QBI from a profitable one, creating a carryforward even when part of your operations did well.

Part II: REIT Dividends, PTP Income, and the Cap

Part II handles two additional streams of income and then applies the overall cap.

Line 6 is your total qualified REIT dividends and qualified PTP income for the year. Line 7 is any qualified REIT/PTP loss carryforward from a prior year. Line 8 combines them. Line 9 multiplies the total by 20%.

Line 10 adds the operating-business deduction from Line 5 to the REIT/PTP deduction from Line 9. This is your tentative total deduction.⁴

The next three lines calculate the income-based cap. Line 11 is your taxable income before the QBI deduction. Line 12 is your net capital gain, which includes qualified dividends. Subtract Line 12 from Line 11, then multiply the result by 20%. The point is to prevent the QBI deduction from sheltering income already taxed at capital gains rates.

Line 15 is the finish. Your actual QBI deduction is whichever is smaller: the tentative deduction from Line 10 or the income-based cap. Transfer that figure to your Form 1040, 1040-SR, or 1040-NR.³

When You Can’t Use Form 8995

Two situations push you off the simplified form.

The first is income above the threshold. Any taxpayer with taxable income before the QBI deduction over $201,750 ($403,500 joint, $201,775 married filing separately) for 2026 has to use Form 8995-A, which applies a W-2 wage limit and an alternative wage-plus-property limit to each business.²

The second involves specified service trades or businesses. If you work in health care, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, or any business whose principal asset is the reputation or skill of its employees, your business is an SSTB.³ Below the income threshold, that label is irrelevant and you use Form 8995 like anyone else. Once your income enters the phase-in range ($201,750 to $276,750 single, $403,500 to $553,500 joint for 2026), you move to Form 8995-A for a partial deduction.¹ Above the top of the range, the deduction for SSTB income disappears entirely.

Rental Real Estate on the Form

Rental income does not automatically count as QBI. To list a rental property in Part I, the activity generally has to rise to the level of a trade or business. Revenue Procedure 2019-38 provides a safe harbor: perform at least 250 hours of rental services per year for each rental real estate enterprise. For properties owned at least four years, the 250-hour requirement applies to any three of the five most recent tax years.⁶

Rental services include advertising for tenants, negotiating leases, verifying tenant information, collecting rent, managing repairs, and supervising contractors. The safe harbor also requires separate books and records for each enterprise and contemporaneous logs documenting the hours, a description of the work, the dates, and who performed it.⁶ Contemporaneous means logged when the work happens, not reconstructed at tax time.

Attaching and Filing the Form

Attach the completed Form 8995 to your federal return. Most tax software populates it automatically from your Schedule C and K-1 entries and files it with the return electronically. Trusts and estates use Form 1041. If a trust holds S corporation stock through an electing small business trust, attach Form 8995 as a PDF to the ESBT tax worksheet and write “ESBT” in the top margin.³

Documentation and a Tighter Penalty Standard

QBI claims live under a stricter accuracy rule than most items on a return. Section 6662 normally imposes a 20% accuracy-related penalty when an understatement of income tax exceeds 10% of the tax owed. For returns claiming the Section 199A deduction, that threshold drops to 5%.⁷ A smaller error can trigger the penalty than would on other parts of your return.

Keep organized records for each business showing gross income and deductions, supported by invoices, receipts, bank statements, and proof of payment.⁸ Keep them separated by year and by business. If any rental property is on your Form 8995 under the safe harbor, keep the hour logs and service descriptions with the same care.

1
Internal Revenue Service. Revenue Procedure 2025-32 – 2026 Inflation Adjustments
2
Internal Revenue Service. 2025 Instructions for Form 8995-A
3
Internal Revenue Service. Instructions for Form 8995 (2025)
4
Internal Revenue Service. Instructions for Form 8995 (2025)
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Internal Revenue Service. Qualified Business Income Deduction
6
Internal Revenue Service. Revenue Procedure 2019-38 – Rental Real Estate Safe Harbor
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Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Internal Revenue Service. What Kind of Records Should I Keep