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

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

Blog Article

Investment in rental property is a well-known strategy for making money, and one of the most powerful instruments is a rental property qualified business income. However, not all rental businesses are automatically eligible. To be eligible for the deduction, landlords must prove that their property qualifies as an enterprise or trade under IRS guidelines.

Here's a step-by-step guide to finding out if the rental property you own is eligible for this tax deduction.



Step 1: Understand the QBI Deduction Basics

The QBI deduction permits a deduction of 20% on net business earnings for qualified business activities. Although initially targeted at sole proprietors and small business owners, rental real estate is also eligible if it's run as a commercial enterprise.



Step 2: Evaluate Your Rental Activity

Do you have the following questions in mind?

Do you supervise or manage the property?

Are you responsible for the maintenance of your property, lease, and the relationship with tenants?

Do you keep organized financial records?

• Is your property designed to provide long-term income?

If you answered yes to a majority of these questions, then your rental activities could be categorized as business.



Step 3: Consider the Safe Harbor Rule

To simplify qualification, the IRS provides the safety harbor requirement. To be eligible according to this rule:

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

You must keep detailed records of the time you worked as well as dates and the type of work you have done.

Separate books and records must be maintained for each rental activity.

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



Step 4: Track Rental Services

The IRS defines rental services broadly. The activities that are eligible include:

Tenant communications and screening

The lease is prepared and renewed.

Scheduling for maintenance and repairs

Bookkeeping and expense tracking

Supervising contractors or property managers

No matter how you handle it on your own or assign tasks to others, these services count toward the 250-hour requirement.



Step 5: Group Properties Wisely

If you own several rental units, you could choose to group similar properties into a single business. This simplifies tracking and helps meet the hour threshold more easily. The grouping should be consistent every year, so consult a professional before doing so.



Step 6: Work With a Tax Advisor

Once you've reviewed your activities and documentation, speak with an experienced tax professional to confirm your eligibility. Filing with proper records and documentation will ensure the deduction is applied correctly.



Conclusion

The QBI deduction is among the most powerful tools to property owners who own rental properties, but only if your property is categorized as an enterprise. By proactively managing your rentals by documenting your services and adhering to the safe harbor regulations and regulations, you will be able to enjoy this valuable benefit. If you follow the correct approach your investment in rental properties are likely to be even more profitable at tax time.