Do I qualify for the qualified business income deduction?

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Can I get the QBI deduction on rental income?

Qualified business income, or QBI, is the net income generated by any qualified trade or business under Internal Revenue Code (IRC) § 162.

Rental properties are typically treated as passive activities, which are excluded from the definition of a qualified trade or business. However, rentals that qualify as trades or businesses under IRC § 162 are not considered passive, and that means their income can qualify for the QBI deduction.

To provide preliminary guidance to this popular question, the IRS recently released Notice 2019-07, the key points of which we've summarized below. We expect that IRS guidance will continue to evolve around this topic, and will provide updates when that occurs. Bookmark this page and check back often!

Exclusions

Income from these types of rentals is specifically excluded for the purposes of the QBI deduction:

• Passive rental activities that are not considered a trade or business
  • For example, a single-family dwelling rented out for a year or more in which there is little or no interaction between the landlord and the tenants other than periodically collecting rent and the occasional repair
• Property used as a residence by the taxpayer for any part of the year under IRC § 280A
  • This includes vacation homes, cabins, seasonal or "snowbird" residences, etc.
• Triple-Net (NNN) leases, where the tenant or lessee pays real estate taxes, insurance, and maintenance in addition to rent and utilities
• Rentals located outside the United States
• Land rentals

If your rental or rental activities fall into any of the above categories, you can't take the QBI deduction on the income.

Real Estate Professionals

If you’re a real estate professional for tax purposes (that is, over 50% of the personal services you performed in business during the tax year were in a real estate business you materially participated in for more than 750 hours that same year) then your rental income qualifies for the QBI deduction, provided all the other conditions are met.

Everybody Else

What if you own a rental – or three – but don’t qualify as a real estate professional? Turns out you can qualify for the QBI deduction, as long as your rental activities constitute a trade or business.

Generally, this means each rental real estate enterprise (a rental property or group of similar rental properties, including K-1 rental income) must satisfy these requirements:

1. Each enterprise has its own books and records to track income and expenses;
2. At least 250 hours of rental services are performed per year per enterprise; and
3. (Starting with tax year 2019) Contemporaneous records of services performed are kept which includes who performed the service, description of service, the date of the service, and how long it took (who, what, when, and how long).

Rental services can be performed by the owners or by their employees, independent contractors, or agents and would include things like:

• General operation, maintenance, and repair of the property
• Purchasing materials
• Property management activities
• Supervising employees and contractors
• Advertising the property for rent
• Tenant selection and background checks
• Negotiating and executing leases
• Collecting and depositing rent

Activities excluded from the definition of rental services include:

• Time spent traveling to and from the property
• Reviewing financial statements or operational reports
• Financial or investment management (for example, financing)
• Procuring or acquiring property to rent
• Planning, managing, or constructing long-term capital improvements

Please note that if a rental fails to satisfy these requirements, the enterprise could still be treated as a qualified trade or business for the purposes of the QBI deduction, provided it meets the definition of a trade or business under IRC § 162.

Related Information:

• Where do I enter income and expenses from a rental property?
• What is rental depreciation and how does it differ from an expense?
• What kinds of rental property expenses can I deduct?
• How do I handle capital improvements and depreciation for my rental?
• What can I deduct when refinancing rental property?

https://ttlc.intuit.com/replies/7122193

The website at https://www.wgcpas.com/irs-provides-a-safe-harbor-test-for-section-199a-and-rental-real-estate/ does a pretty good job of putting it into plain english us common folk can understand. 

Does time spent on Accounting and on activities required by the business structure (e.g., LLC membership meetings, reports, etc.) count towards the 250 hours?

No. The 250 hours of rental services are performed during the year with respect to the enterprise. Membership meetings, reports, etc. are not "rental services with respect to the enterprise" since they are of no benefit to the tenant. Excluded from rental services are financial or investment management activities, planning, managing, or constructing long-term capital improvements, or hours spent traveling to and from the real estate.

Does each activity need to be logged with beginning time and ending time or is it sufficient to report hours worked on each day on each type of activity?

The taxpayer maintains records, including time reports and logs, to support the hours, dates, description and provider of the services performed. Understand that this does not mean that "you" personally have to perform the service. For example, if you pay your A/C guy to come out and service the A/C and it takes them three hours, that's 3 hours that "YOU" provided because you paid your A/C guy to perform and provide that service.

In a rental business aggregated of several Schedule E Properties, does the log need to identify the specific property each activity was conducted for?

You actually get to chose. But once a selection is made (with limitations) you can't change it year to year.  The primary limit is that you can't combine residential rental and commercial rental as a single aggregate entity. One reason is because commercial rental and residential rental have different depreciation schedules under MACRS.