Investors & landlords

Carl,

Thank you for replying.  I think I may have to clarify myself.

First, I have been a Turbo Tax user for 15 years and fully intend to file a return for the appropriate tax liability (your response may have questioned that).  What I am noticing has given me a pause and why I am so late in filing this year, and turned to the community discussion for the first time.

My question maybe better stated:  Are the indications I am seeing a quirk in Turbo Tax, or is the QBI extremely advantageous for highly profitable businesses?

I am using TurboTax Premier for Mac.  I use the easy step interview to enter all my data, staring with my W-2 income and withholding.  Then progress through the "income" section with 1099-DIV / INTs, and finally the 1099s from my rental property mangers.  After looking at individual deductions I put in my rental expenses last for the Schedules E.

A prominent feature which I do not see a way to turn off is a window in the top left which shows the potential refund or tax due for both state and federal returns.  This thing constantly changes with every entry; spinning numbers up or down like you'd see on a gas pump or slot machine prize indicator.  

This year, before entering my expenses I observed that I was basically breaking even on my return.  That's pretty much what I expect to see, although with no real difference in my information had a refund last year.  As I mentioned, historically I either basically break even or have a slight paper loss for my rentals after depreciation.  This year as I entered all my Schedule E expenses I noticed the potential tax due amount kept climbing.  That struck me as unusual, as at this point I am offsetting the rental income with expenses.  I did not understand how my tax liability was increasing while the software should have been seeing less and less of a profit from the rentals.

Just out of curiosity if I found a bug in the software, I backed out all my expenses and noted the difference in projected refund or amount due.  That brings me to ask if there's a big glitch in the software, or whether the QBI favors very profitable businesses.  (If the latter is the case, the concept of breaking even on taxable rental income is an outdated model...)

For the hours involved topic - in the TurboTax interview questions you are only asked if you are a real estate professional.  I am not, so I answer "no."  The program only asks if you are an active participant in managing the rentals, and does not ask about an hour total of that participation.  I was not even aware of that concern until digging into this topic more this year.  The software interview questions may need additional amplification on this topic.  I am a very small investor, and my rentals are homes I have lived in over the past many years and kept after I moved out.  I have found Schedules E very straight forward and chose to use Turbo Tax, rather than a paid preparer over the years.  I have not been looking for any ambitious loopholes or anything to skirt the tax system; rather to just make sure all the numbers go on the right lines and add up.  If this program is exposing me to a liability for claiming the QBI deduction based on the questions it asks me than this may be my last year using it.

Thank you again for your response.  I still am confused on how my tax taxable income seems to be lower when I have no rental expenses entered than when I do.