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Is income from a rental property considered Qualified Business Income (QBI)?

Home Tax Reduction Is income from a rental property considered Qualified Business Income (QBI)?

  • Avatar SWEng 
    Participant
    Status: Other Professional, Small Business Owner, Spouse
    Posts: 42
    Joined: 04/08/2017

    We bought a condo in 2011. as our primary residence. We moved out of state for my wife’s residency in 2016. and started renting out the condo. Is income from this rental property considered Qualified Business Income QBI? Thank you in advance!

    #180214 Reply
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 842
    Joined: 11/07/2017

    As I understand it you need to demonstrate you are running and spending time running it as a business rather than just it being an investment. If I were you I would spend some time reading the 2017 Tax Cuts and Jobs Act and associated regulations and discuss it with an accountant who understands the details of this to determine if this is applicable in your particular situation.

    #180242 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1703
    Joined: 01/15/2017

    If you’re active it does appear so. Quicken asks about it during the interview process.

    #180251 Reply
    Avatar SWEng 
    Participant
    Status: Other Professional, Small Business Owner, Spouse
    Posts: 42
    Joined: 04/08/2017

    TurboTax asked about it 🙂 We are out of state and have a property management company take care of it, so I guess the answer is no.

    Thank you all!

    #180259 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2121
    Joined: 06/24/2016

    You still have to be a §162 “trade or business” in order to take it, which essentially requires material participation with “continuity and regularity.”

    It will probably be case-by-case, and probably won’t be to the extent of getting §469(c)(7) FTREP status to carry forward losses and make retirement contributions with it (50% of your time/income and 750 hours/year), but if you take any significant active hand other than depositing your checks each month, you could *consider* trying to classify yourself as a §162 trade or business (which has a fairly nebulous definition)…but I’d make sure it’s worth the audit risk, and be prepared as such with timesheets, activity logs, etc.

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #180264 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 447
    Joined: 08/30/2018

    TurboTax asked about it  We are out of state and have a property management company take care of it, so I guess the answer is no.

    Thank you all!

    Click to expand…

    I agree with DFMA. Having a management company absolutely does not preclude you from considering the rental to be a business. I recommend you read Stephan Fishman’s every Landlord’s Tax Deduction Guide. Chapter 2 addresses this issue. Short version: make a profit; work at it regularly, systematically, and continuously. Several court cases have held you can meet this standard with a management company. In your situation though, with only one property, it will be key to be profitable.

    #180619 Reply

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