QBI Deduction For Rental Property (A Helpful Example Activity Log)

The Qualified Business Income (QBI) deduction, (also called pass-through deduction, or section 199A deduction) was created by the 2017 Tax Cuts and Jobs Act (TCJA).

Rental Real Estate as Passive Income

Anyone who has ever been a landlord, can attest to the fact that real estate business is never passive. No matter what the IRS says!

Without passive income, your rental losses are suspended losses and can’t be deducted until you have sufficient passive income in a future year. You may not be able to deduct such losses for years.

Solely for the purposes of § 199A, a safe harbor is available to individuals and owners of passthrough entities with respect to a rental real estate enterprise.

How To Apply QBI for Rental Property

Real estate rented under a triple net lease (NNN) in which the tenant pays for taxes, fees, insurance, and maintenance is not eligible for the safe harbor.

Why Section 199A Safe Harbor Provision Is Important For Real Estate

The Safe Harbor provision allows rental real estate to be treated as a trade or business for purposes of the qualified business income deduction under section 199A.

Qualifying Activities To Claim QBI For Rental Property

The Rental services do not necessarily need to be performed by you as the owner. They can be performed by owners or employees, agents, and independent contractors.

Rental Activities Excluded From Claiming QBI For Rental Property

The Safe Harbor rules explicitly deal with managing the property. So a number of activities which rental owners typically perform with respect to acquisition are excluded.

If you fail to make a Compensation Deferral election within this initial 30 day enrollment period, you cannot elect to defer Compensation until the following Plan Year.

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