Is a Rental Property Qualified Business Income? Factors That Affect Eligibility

Is a Rental Property Qualified Business Income? Factors That Affect Eligibility

Blog Article

Investment in rental property is a very popular method of making money, and one of the most powerful tools is a rental property qualified business income. However, not all rental ventures can be considered a business. To qualify for the deduction landlords must demonstrate that their property qualifies as a trade or business under IRS guidelines.

Here's a step-bystep guide for finding out if the rental property you own can be eligible for this tax deduction.



Step 1: Understand the QBI Deduction Basics

The QBI deduction allows for a 20% deduction on net business income for eligible business-related activities. While originally aimed at sole proprietors and small business owners, real estate rental is also eligible if it's run as a business.



Step 2: Evaluate Your Rental Activity

Consider the following questions:

Do you frequently manage or oversee the property?

Are you in charge of the maintenance of your property, lease, and relations with tenants?

Do you keep organized financial records?

• Is your property destined to generate long-term income?

If the answer is yes to most of these questions, your rental activities could be categorized as a business.



Step 3: Consider the Safe Harbor Rule

To simplify qualification to make it easier for applicants, the IRS provides a safety harbor requirement. To be eligible according to this rule:

Your rental company must involve 250 hours or more of rental services annually.

You should keep meticulous logs of time spent on specific dates, as well as the types of work you have done.

Note: Separate records and books must be maintained for every rental operation.

This law makes it much easier for landlords to prove their business activities.



Step 4: Track Rental Services

The IRS define rental services broadly. Activities that qualify are:

Tenant communication and screening

Lease preparation and renewals

Scheduling for maintenance and repairs

• Bookkeeping, expense and time tracking

Supervising contractors or property managers

Whether you handle it personally or delegate the task they count towards the 250-hour minimum.



Step 5: Group Properties Wisely

If you have multiple rental properties, you can choose to group similar properties into a single business. This will make it easier to track them and help achieve the hourly limit easier. Grouping must be consistent each year, so make sure to consult an expert before making any changes.



Step 6: Work With a Tax Advisor

After you've reviewed your activity and documentation, speak with a tax professional to verify eligibility. Filing with proper documents and records will guarantee that the deduction is properly applied.



Conclusion

It is the QBI deduction is among the most powerful tools available for rental property owners--but only if your property is categorized as a business. By actively managing your rentals by documenting your services and following the safe harbor rules to gain this benefit. With the right approach the rental investment you make will be more lucrative at tax time.