Qualified Business Income and Rental Property

[Anonymous]

I am a landlord and have typically reported my investment property income of $7000-10,000 as income on my taxes, but I don't see a way to do that this year. Does this income now count as Qualified Business Income and therefore is a deduction? If so that's awesome! But what am I missing?

[Anonymous]

Don’t you report it on Schedule E?

[Anonymous]

Schedule E income and deductions. It won’t count as QBI unless you unless you’re actively managing it or you operate another business on the site and have a lease agreement with your own business. It also appears it needs to held through a corporate vehicle (LLC, S Corp, etc)

https://www.sikich.com/insight/tax-considerations-for-real-estate-investors-how-does-the-qualified-business-income-deduction-apply-to-real-estate-businesses/

I rent out my basement level apartment and live in the house above. I do a lot of active management - market the unit, find the tenants, make repairs and upgrades to the unit and shared amenities. But it’s not my “business.” I believe there is an annual hours spent threshold to qualify as being in the business of real estate.

Now, if you own a bunch of units, hold them in a corporate vehicle, and/or real estate is clearly your main “business,” then you likely will qualify. But just owning one rental condo that you bought 20 years ago before getting married won’t qualify.

[Anonymous]

We own a few properties and spent tons of time renovating and managing two of them this year so I am hoping that we will qualify for the QBI. We don't hold the properties in an LLC. Is this a requirement? I'm in the process of getting all of our documents together to send to our tax preparer.

[Anonymous]

Anonymous wrote:We own a few properties and spent tons of time renovating and managing two of them this year so I am hoping that we will qualify for the QBI. We don't hold the properties in an LLC. Is this a requirement? I'm in the process of getting all of our documents together to send to our tax preparer.

You may qualify, if you have a solid record of your rental management activities. Everything is a bit up in the air, since this is the first year it’s been applied.

This is a really good read on the issues: https://www.kitces.com/blog/real-estate-aggregation-section-199a-qbi-deduction-rules/

[Anonymous]

In order to count your rental business as QBI, you need to log at least 250 hours of work on the house according to the safe haven put out by the IRS. I have 5 rentals but didn't keep a written record, will start doing this in 2019.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We own a few properties and spent tons of time renovating and managing two of them this year so I am hoping that we will qualify for the QBI. We don't hold the properties in an LLC. Is this a requirement? I'm in the process of getting all of our documents together to send to our tax preparer.

You may qualify, if you have a solid record of your rental management activities. Everything is a bit up in the air, since this is the first year it’s been applied.

This is a really good read on the issues: https://www.kitces.com/blog/real-estate-aggregation-section-199a-qbi-deduction-rules/

Thanks so much for this article!

[Anonymous]

Anonymous wrote:In order to count your rental business as QBI, you need to log at least 250 hours of work on the house according to the safe haven put out by the IRS. I have 5 rentals but didn't keep a written record, will start doing this in 2019.

We did tons of renovations on two properties this year which helps as we have all the receipts of that work plus I just went through Google timeline which logged all of our visits to the properties so I figure that will be solid as far as documentation that we met the hours. I just now need to put the timeline info. into a spreadsheet. I've jotted down all my visits but my husband needs to do the same.

[Anonymous]

250 hours requirement is for one property or both properties combined?

[Anonymous]

[quote=Anonymous]250 hours requirement is for one property or both properties combined?[/quote]

That I can't tell but we should have 250 for each I think.

[Anonymous]

[quote=Anonymous]250 hours requirement is for one property or both properties combined?[/quote]

I think it’s probably combined for all properties. You need to prove you’re in the business of “real estate.” The time can include actual work done on the propert, visits, paying bills & taxes, time spent looking for tenants, filing paperwork, etc. It’s more inclusive than just manual labor.

My question: if you hire a professional to do the work, can you also include the hours that person spent on labor?

[Anonymous]

[quote=Anonymous][quote=Anonymous]250 hours requirement is for one property or both properties combined?[/quote]

I think it’s probably combined for all properties. You need to prove you’re in the business of “real estate.” The time can include actual work done on the propert, visits, paying bills & taxes, time spent looking for tenants, filing paperwork, etc. It’s more inclusive than just manual labor.

My question: if you hire a professional to do the work, can you also include the hours that person spent on labor?[/quote]

According to the safe haven, you can count the hours you hire someone to do the work. The odd thing is you cannot count the time driving to/from the rentals. And yes, I believe all the rentals you own count toward the 250 hours, not per rental.

[Anonymous]

I find it odd too that you can count hours to get to rental properties toward 250 hours. Doesn’t make sense to me.

[Anonymous]

Meant to say can NOT!

[Anonymous]

[quote=Anonymous][quote=Anonymous][quote=Anonymous]250 hours requirement is for one property or both properties combined?[/quote]

I think it’s probably combined for all properties. You need to prove you’re in the business of “real estate.” The time can include actual work done on the propert, visits, paying bills & taxes, time spent looking for tenants, filing paperwork, etc. It’s more inclusive than just manual labor.

My question: if you hire a professional to do the work, can you also include the hours that person spent on labor?[/quote]

According to the safe haven, you can count the hours you hire someone to do the work. The odd thing is you cannot count the time driving to/from the rentals. And yes, I believe all the rentals you own count toward the 250 hours, not per rental.[/quote]

This is interesting. I am the poster with the multiple renovations this year. We hired contractors to do the work but I was just counting the time we spent overseeing their work, going back and forth to the properties etc. How would one estimate the amount of time it took the contractor to do the work? I wasn't planning on including that in my calculation. Also I didn't realize one couldn't include commuting time. Can someone point out where they read that before I remove it from my chart.