Mom and Pop Tax Relief Act
The Mom and Pop Tax Relief Act would overhaul the Section 199A qualified business income (QBI) deduction. The bill would cap the deduction at a maximum of $25,000 per taxpayer (across all qualified trades or businesses) and then reduce that amount further based on adjusted gross income (AGI), with the reduction beginning when AGI exceeds $200,000 for individuals or $400,000 for joint filers. In addition, the bill would redefine what counts as a qualified trade or business (limiting the deduction to non-employee businesses) and eliminate certain loss carryover rules. It also makes a series of conforming changes to how the deduction is calculated, including W-2 wage and domestic production rules, and adds rules to account for short years or major business changes. The amendments would take effect for taxable years beginning after December 31, 2025.
Key Points
- 1Cap on deduction: The combined qualified business income amount is limited to the lesser of total QBI across all qualified trades or $25,000.
- 2AGI-based phaseout: The deduction is reduced (but not below zero) by the amount by which a taxpayer’s AGI exceeds $200,000 ($400,000 for joint returns). This can reduce the deduction to zero for higher-income filers.
- 3Definition of QBI: The bill defines a qualified trade or business as any trade or business other than performing services as an employee, effectively excluding employees from qualifying for the deduction.
- 4Loss carryover simplification: The bill eliminates the loss carryover provision related to QBI (removing paragraph (2) of §199(c)).
- 5Conforming amendments and other changes: It restructures several parts of §199A(b) and related provisions, updates W-2 wage calculations to be domestic-production-gross-receipts focused, clarifies tax return timing, addresses acquisitions/dispositions and short taxable years, and to ensure the taxable income calculation for purposes of §199A is defined without counting the deduction itself (with specific exceptions).
- 6Effective date: The amendments apply to taxable years beginning after December 31, 2025.