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How do I know if my rental property qualifies for the Qualified Business Income deduction (QBID)?

SOLVED•by TurboTax•625•Updated 1 month ago

Figuring out what type of rental property qualifies for the qualified business income deduction (QBID) can be a little tricky, but don't worry! We’ll help guide you through the process. 

To get started, you’ll need to get to the QBID section in TurboTax. 

  1. Sign in to TurboTax and open your return.
  2. Search for Qualified business income deduction and select the Jump to link at the top of the search results to get to the QBID section.

Next, you'll answer questions based on your rental type to determine if it qualifies for the QBID.

  1. Select Rentals and royalties (Schedule E) on the Qualified Business Income Deduction Summary screen.
  2. Answer Yes to Do you have any income from rentals or royalties?
  3. Select Rental property on the What are you here to report? screen.
  4. Complete the information about your property on the screens that follow.
  5. Select Looks good on the Review your rental property info screen.
  6. Complete the information about your income and expenses on the screens that follow.
  7. Review the Here's [property name]'s rental property info screen and select Done.
  8. Answer Do you want to take the QBI safe harbor?, then select Continue.
  9. Select Yes or No to Is this Qualified Business Income? to complete the interview for your rental property and the QBID.

The questions we ask vary depending on your rental property type.  Here’s an overview of what you can expect:

TurboTax will ask a few questions to make sure your property is a self-rental.

If you rent the property to another business you own and materially participate, your rental will automatically qualify for the QBID.

Example: If you select Self-rental, we’ll ask if you materially participated in the operations of the rental property. 

We’ll ask this question again on the Is this Qualified Business Income? screen.

You’ll be asked questions to determine if your rental is qualified for the QBID based on one of these options:

  1. Safe harbor provisions (IRS Notice 2019-07)
  2. Real estate enterprise (the election to combine the property with other properties, Revenue Procedure 2019-38)

If you choose either of these, we'll provide an additional form to sign an mail with your tax return.

If your rental property is part of a real estate enterprise, we’ll ask questions to confirm: 

  1. The type of real estate enterprise (residential, commercial, or mixed-use)
  2. Whether an enterprise statement is already set up for your return

As you add more rental properties to your Schedule E, you can add them to the real estate enterprise as needed.

Even if you choose None of these apply for the safe harbor elections, TurboTax will ask you one more time Is this Qualified Business Income?. That’s because it can be difficult to determine if the IRS will consider an activity a trade or a business. They handle these situations on a case-by-case basis, so we have to allow you to decide whether your rental activity qualifies. 

Select the More info about what’s considered a qualified business link for more information. 

Anything you choose that qualifies your rental activity for the QBID will be followed by more specific questions.

  1. On the Let’s cover some uncommon situations screen, we’ll ask if you need to make any adjustments, if there are deductions from other topics related to this business, and/or if this business has wages. Select Learn more for details about these options.
  2. On the We’re almost done screen, we’ll ask questions to determine if your rental activity falls under the specified service trade or business (SSTB) rules.
  3. For a rental activity, the screen Does this business receive income from a specified services business with common ownership? may apply to self-rentals.
  4. Finally, we’ll ask Should this business be treated as a part of a combined business?. When you have more than one business with QBI, we’ll ask if you want to combine or “aggregate” these businesses for the QBI deduction.

For details about the IRS criteria for combining businesses for the QBID, select the Shares common ownership and operates co-operatively with another business link.

If your 2023 taxable income is $182,100 or less for Single status, or $364,200 or less for Married Filing Jointly status, there’s no advantage to combining your rental activities for QBI purposes. You can always choose to combine them in a later year if your income level makes that advantageous, as long as they meet the IRS criteria for combining businesses for QBI.

However, once you combine (aggregate) businesses for QBI purposes, you must continue to combine them in future years.

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