I'm a limited partner in a partnership that owns a hotel. I don't participate in the business at all. Is my partnership income considered Qualified Business Income?

[jpendle]

My K-1 includes what I need to calculate the QBI deduction, but I'm not sure I'm eligible for it because of my non-involvement in the hotel and the partnership.

[JulieCo]

The QBI deduction is calculated by TurboTax, therefore there is nothing the taxpayer needs to do to calculate the deduction.

The deduction is on qualified business income and is not dependent upon whether one is a passive or active participant, it is only based upon the type of income. The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

Below is the definition per the IRS of the Qualified Business Income for the calculation:

Your qualified business income includes items of income, gain, deduction, and loss from your trades or businesses that are effectively connected with the conduct of a trade or business within the Unites States. This includes income from partnerships (other than PTPs), S corporations, sole proprietorships, and certain trusts that are included or allowed in determining your taxable income for the year. It also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance, and contributions to qualified retirement plans. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

If your K-1 form includes amounts for QBI (Section 199A) amounts, then TurboTax will calculate the deduction.  There are other pieces to the deduction, as well, plus the formula is a little different in each taxable income threshold level.  See more information below:

https://ttlc.intuit.com/replies/7019998

[jpendle]

Even though Chapter 12 of Pub. 535 says"In general, to be engaged in a trade or busi-ness, you must be involved in the activity with continuity and regularity and your primary pur-pose for engaging in the activity must be for in-come or profit."? To me that says I'm not engaged in this business.

[JulieCo]

The next sentence of Pub 535 is "If you own an interest in a
pass-through entity, the trade or business determination is made at that entity's level."  For the QBI deduction, the concern is about whether the income is from a trade or business and not whether you are a passive or active participant in the business.  For instance, not all rental income is considered  "trade or business" because of the typical passive nature of the business activity.