The situation is pretty standard. A rental property on SchE reported for many years that kept accumulating passive activity losses, disallowed for deduction since my MAGI is above 150k. I used it for personal use part of the year, so specified "Day of personal use" higher than 10% of "Days rented at fair rental value" / 14d, which made it a mixed-use rental property. Instead of seeing all deductions disallowed (vs carried over like w/a standard rental) I saw line 22 in SchE change from 0 to the property's annual losses and then carried through QBID Smart Worksheet (line 4a and 4c) into Sch1 Line 5 "Rental real estate, royalties, partnerships, S corporations, trusts, etc.", then line 9 and then up to Form 1040 line 8 "Other income from Schedule 1, line 9.
In Form 8995A "QBID Simplified Computation" Schedule C I see the full loss under Aggregation 1 (covers my two rentals). All that loss is coming from the mixed-use rental property - when set to regular rental - this is zero. If I switch the other to mixed-use by saying I used it for personal use enough days, its losses also show up here.
TLDR: TT propagates loss on a mixed-use rental through QBI for me. This is for 2020. I can easily repro this on my other rental property's SchE by also switching it to mixed-use w/higher personal use. I also added a synthetic 100k expense and it propagated all of it, deducting against my active income, and switching me from 8995A to 8995 (cause now my taxable income would be low enough for the simpler form).
My understanding of the tax code says this shouldn't be happening, and QBI losses are undesirable as they offset QBI income, including future (through carry over). That said, Intuit also warrants that all changes via their UI are compliant with the tax code and if it lets me deduct losses against active income, I'd love to understand why. Is there a scenario where mixed-use rental income was allowed to be deducted from active income through QBI losses? Could this be specific to 2020 (Covid Tax Relief Act)?
UPDATE: This does *not* repro on my 2019 TT - there it correctly sets line 22 in SchE to zero, soon as I turn rental into a mixed-use w/number of days above 10%/14d. So, a 2020 specific behavior, which might be Covid TRA related.
Thanks, MM
