Is My Rental Property QBI? What Every Landlord Should Know Before Filing Taxes

Is My Rental Property QBI? What Every Landlord Should Know Before Filing Taxes

Blog Article

Rental property investing is a popular strategy for creating wealth. One of the most effective tools is my rental property qualified business income. However, not all rental ventures qualify automatically. To qualify for the deduction landlords must demonstrate that their property qualifies as an industry or trade according to IRS guidelines.

Here's a step-by-step guide to determining if your rental property is eligible for this 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 activities. Although initially targeted at sole proprietors and small business owners, landlords of rental properties is also eligible if it's run like a business.



Step 2: Evaluate Your Rental Activity

Do you have the following questions in mind?

Do you regularly manage or oversee the property?

Are you accountable for maintenance, leasing, or the relationship with tenants?

Do you keep organized financial records?

Is the property designed to earn a long-term profit?

If the answer is yes to a majority of these, your rental activity may be categorized as a business.



Step 3: Consider the Safe Harbor Rule

To ease the process of obtaining a qualification, the IRS offers the secure harbor rules. To qualify in this way:

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

You should keep meticulous journals of your time as well as dates and the type of work performed.

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

This rule makes it 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 preparation and renewals

Maintenance and repair schedule

• Bookkeeping, expense and time tracking

Supervising contractors and property managers

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



Step 5: Group Properties Wisely

If you have multiple rental properties, you can elect to group similar properties together into one business. This simplifies tracking and helps achieve the hourly limit much more quickly. It is essential to keep the same groupings throughout the year, so consult an expert before making any changes.



Step 6: Work With a Tax Advisor

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



Conclusion

The QBI deduction is one of the most powerful tools to property owners who own rental properties, but only if the property is classified as an enterprise. By proactively managing your rentals, documenting services, and adhering to the safe harbor rules and regulations, you will be able to enjoy this valuable benefit. With the right approach your investment in rental properties will be more lucrative at tax time.