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 very popular method of making money, and one of the most effective instruments qualified business income deduction for rental property. But not all rental activities can be considered a business. To qualify for the deduction landlords must show that their property qualifies as an enterprise or trade under IRS guidelines.

This step-by-step guide will assist you in determining if your rental property qualifies for this valuable tax benefit.



Step 1: Understand the QBI Deduction Basics

The QBI deduction allows for a deduction of 20% on the net income of a business for qualified business-related activities. While originally aimed at sole proprietors and small-business owners, landlords of rental properties can also qualify--if it's operated like a business.



Step 2: Evaluate Your Rental Activity

Consider the following questions:

Do you regularly manage or supervise the property?

Are you accountable for the maintenance of your property, lease, or the relationship with tenants?

Do you keep organized financial documents?

Does the home designed to earn a long-term profit?

If you answered yes to most of these questions, then your rental activities could be treated as an enterprise.



Step 3: Consider the Safe Harbor Rule

To ease the process of obtaining a qualification To make qualification easier, the IRS offers the safe harbor rule. To qualify in this way:

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

You must keep detailed journals of your time on specific dates, as well as the types of work done.

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

This makes it simpler for landlords to clearly prove their business activity.



Step 4: Track Rental Services

The IRS define 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, expense and time tracking

Supervising contractors or property managers

Whether you handle it personally or assign tasks to others they count towards the 250-hour minimum.



Step 5: Group Properties Wisely

If you own several rental units, you could choose to group similar properties into a single enterprise. This makes it easier to track and allows you to reach the hourly threshold much more quickly. Grouping must be consistent each year, so make sure to consult an expert prior to making this decision.



Step 6: Work With a Tax Advisor

After reviewing your actions and documents, consult a tax professional to confirm eligibility. Making sure you have the proper documents and records will guarantee the deduction is correctly applied.



Conclusion

This QBI deduction is one of the most powerful tools for property owners with rental properties. However, only if your property is categorized as an enterprise. By actively managing your rentals, documenting services, and following the safe harbor rules to gain this benefit. If you follow the correct approach, your rental investments will be more lucrative when it comes to tax time.