Is Your Rental Property QBI-Eligible? A Landlord’s Tax Checklist

Is Your Rental Property QBI-Eligible? A Landlord’s Tax Checklist

Blog Article

Rental property investing is a popular strategy for making money, and one of the most powerful instruments qualified business income deduction for rental property. However, not all rental businesses are automatically eligible. 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 determining if your rental property qualifies for this valuable tax benefit.



Step 1: Understand the QBI Deduction Basics

The QBI deduction allows for an exemption of 20% of net business earnings for qualified business-related activities. Although initially targeted at sole proprietors as well as small business owners, real estate rental is also eligible if it's run as a business.



Step 2: Evaluate Your Rental Activity

Do you have the following questions in mind?

Do you manage or oversee the property?

Are you accountable for maintaining, leasing or tenant relations?

Do you keep a record of your financial record?

Is the property designed to generate long-term income?

If the answer is yes to a majority of these questions, then your rental activities could be treated as business.



Step 3: Consider the Safe Harbor Rule

To ease the process of obtaining a qualification, the IRS offers a secure harbor rules. To be eligible under this rule:

Your rental business should be able to provide 250 hours or more of rental service per year.

You should keep meticulous logs of time spent, dates, and types of work you have done.

Separate books and records must be maintained for every rental event.

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



Step 4: Track Rental Services

The IRS define rental services broadly. Eligible activities include:

Tenant communication and screening

• Lease renewals and lease preparation

Maintenance and repair schedule

• Bookkeeping, expense and time tracking

Supervising contractors or property managers

If you manage it yourself or delegate the task, these services count toward the 250-hour minimum.



Step 5: Group Properties Wisely

If you have multiple rental properties, you can choose to group similar properties together into one business. This will make it easier to track them and help meet the hour threshold much more quickly. The grouping should be consistent every year, therefore consult an expert prior to making this decision.



Step 6: Work With a Tax Advisor

After you've reviewed your activity and documentation, speak with an expert tax advisor to confirm eligibility. Making sure you have the proper documents and records will ensure the deduction is correctly applied.



Conclusion

The QBI deduction is among the most powerful tools for property owners with rental properties. However, only if your property qualifies as a business. By actively managing your rentals by documenting your services and following the safe harbor rules to gain this important advantage. If you follow the correct approach the rental investment you make can be even more profitable when it comes to tax time.