It depends. TurboTax uses its “Best Tax Result” logic to review your Qualified Business Income (QBI) and Energy Credits. That’s why the software may be setting aside your higher itemized deductions—it’s looking for the option that saves you more.
The QBI deduction (Section 199A) for rental activity is typically 20% of your qualified business income. But there’s an important limit: your QBI deduction can’t be more than 20% of your total taxable income (before the QBI deduction).
- If you itemize ($32,000): Your taxable income goes down. If it drops too much, your QBI deduction also gets smaller.
- If you take the standard deduction ($31,500): Your taxable income is a little higher, which may let you claim a bigger QBI deduction.
TurboTax checks both options. If the extra QBI deduction from taking the standard deduction is worth more than the $500 difference in your itemized deductions, the software will pick the standard deduction since it leads to a lower tax bill.
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