Can a Rental Property Enterprise which qualifies for QBI treatment, also be used to offset Passive losses on another investment?

[PTR1]

I have a number of rental properties which my husband & I materially participate in (we do everything), spend more than 250 hours on (in aggregate), keep separate records for, etc. So, this is being treated as a trade or business, and we are able to take the QBI deduction.  We also have a small ownership in a passive unrelated business and get a K-1 (1065) for that business.  That K-1 has losses.  Turbo Tax is putting the net profit from the rental "business" onto form 8582 (Passive Activity Loss Limitations), and is using that to offset the passive losses from the K-1 business. Is that correct?  Would the rental property trade/business be eligible for the QBI and ALSO able to be used against passive losses?  In prior years TT did not bring the rental property over to the passive 8582 form, but it is doing so this year.  I don't know what to do.  The accumulated losses are large, and so this is a material issue for me.  Any suggestions?  Please - someone help!

[Mike9241]

did you claim real estate tax professional status in 2023 but not 2024?  For 2023, if you did, the real estate activities would not be passive and not flow to form 8582.  So you would be left with those passive losses in 2023. if not, rental income with active participation should flow to 8582 line 1a, but with material participation should flow to 8582 line 2a and would offset the other passive business losses.

seems something is wrong with 2023

the special QBI rule for rental real estate does not transform it into a nonpassive activity. 

rules to be a REP

1.Time Commitment: You must spend more than 750 hours during the tax year on real estate activities. This includes tasks such as property management, development, leasing, and brokerage.
2. Primary Focus: More than half of your total working hours must be dedicated to real estate. For example, if you work 1,500 hours a year, at least 751 hours must be in real estate activities.
3. Material Participation: You must demonstrate material participation in your real estate activities. This can be established by meeting one of the IRS's seven tests for material participation, with the most common being that you participate for more than 500 hours in the activity during the tax year.

[PTR1]

Mike -thanks for taking the time to reply!  I think 2023 & prior are correct (RE Pro status).  My husband just retired here in 2025, but has been a real estate professional which included managing our rental properties in 2024 & prior for many years.  So, for 2024 it was my intention to count him as a real estate professional (I am working under an extension with a due date of 10/15).  (We will have to change that when we do the 2025 taxes).  But I cannot find where to input the RE Professional designation in the 2024 Premier software (I have done this in prior years).  The only question I'm getting in the "interview" section has to do with are we "actively" participating.  And since I can't figure out how to designate the RE Pro, the rental property income is going over to form 8582 (line 1a), and is therefore being counted against the other passive losses.  (I even tried to manually override the "Passive Status" on the Activity Summary Smart Worksheet for my properties, which has "Active", to "RE PRO".  But that's not making the Form 8582 change).

That's OK if I am still able to take the QBI deduction legitimately AND the passive loss offset.  (BTW, the software is giving me the QBI deduction AS WELL AS the Passive Loss offset right now.)  But that seems suspect to me and I don't want to screw up the return and get audited/penalties for underpaying, etc).  

So I need to figure out how to get that RE Pro designation to work, or leave it as-is if I am legitimately entitled to the QBI deduction AND the passive loss offset.

I really, really appreciate any insight/opinions you might provide.  I am really stuck and don't know how to proceed.

[Mike9241]

the question is in the info worksheet if you use forms mode

in step/interview mode it should be under the rental properties and royalties section - click on update.. it should be the first screen

[Mike9241]

if you file as a real estate professional (REP) you are entitled to the QBI deduction which is a separate code section (199A) from the passive activities code section (469). Rental real estate is not a passive activity for REPs so is treated as a nonpasive trade or business. on the other hand you don't have to be a REP to qualify for the QBI because that has different requirements. one being only 250 hours. 

you can be a REP one year but not the next