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Getting to know your Qualified Business Income (QBI)-Does your rental income qualify?

Written by Nick Bullockrental-prop.jpg

In September of 2019, the IRS released final guidance to determine if a rental activity qualifies for the Section 199A Business Income Deduction (QBI). This deduction is equal to the lesser of 20% of your taxable income or your combined business activities.

The criteria to qualify the rental income are if the: According to the facts and circumstance test, a taxpayer may consider a property a rental property if:

A) the property is continually and regularly involved in a trade or business and
B) the taxpayer is intending to make a profit.

This definition is intentionally broad and is determined by the facts and circumstances of each case. IRS Notice 2019-7 contains Safe Harbor Rules which are intended to alleviate the confusion in this area.
The Safe Harbor requirements are that:
  • Separate books and records be maintained for each rental enterprise and
  • Logs are kept showing 250 or more hours spent performing any of the following services for the rental enterprise:
    • advertising,
    • executing leases,
    • rent collection,
    • verifying prospective tenants’ information,
    • maintenance and repair of property,
    • real estate management, and
    • supervision of employees and independent contractors. 
Activities that do not qualify for the 250-hour test are: 
  • Buying property
  • Arranging financing 
  • Developing long-term capital improvements,
  • Hours spent traveling to and from the real estate
Therefore, if you spend 250 hours or more doing any of the following for your rental real estate business:
  • Advertising to rent
  • Vetting prospective tenants and applications
  • Negotiating leases
  • Collecting rent
  • Maintaining and repairing the property
  • Managing the real estate
  • Supervising employees and independent contractors
You will be able to include your rental activities in the calculation of your Qualified Business Income Deduction (QBI).

For more information on Rentals and the Section 199A Deduction, call 800-370-3276 or email and one of our dedicated tax specialist will help determine if your rental activity qualifies.

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