I qualify for QBI but am not a SP or LLC

[Leolover]

Hello, I have been the landlord of 5 rental properties for over 20 years. I spend over 1/2 my time taking care of these properties and have always claimed to be a "real estate professional" who is actively involved with managing the properties. I ALSO have a separate full time career with w-2 income. Ive always filed a 1040 with my w-2 income and listed my rentals on schedule E. I do not have a sole proprietorship or LLC. This year turbo tax home and business is asking me "Is this qualified business income?" The income meets all the criteria so I choose "yes" but then it asks me to enter my Sole proprietorship or LLC EIN, which I do not have. If I select "no" to the question it asks me if I should change my previous entries. I'm very confused by all of this. Can you please clarify what I should be doing? Thank you!

[DianeC958]

If you have not organized an LLC then you are operating as a Sole Proprietor and you use your Social Security Number as your EIN.

[Leolover]

Thanks, But I'm filing on a 1040, not a schedule C.  I guess what I'm most concerned about is if I choose the box says this is NOT QBI does that make it look like I am not a real estate professional or that this is my trade?  Id rather just skip the whole QBI and file the way I have for the last 20 years..

[DavidS127]

The issue you are having has been reported for investigation.  

As a "workaround" for your issue, go back through the Step-by-Step interview for each Schedule E and you will see a screen requesting Business name and EIN.  Enter Not Applicable in the box for Business name, and your Schedule E QBI deduction will calculate correctly.

You can do this in TurboTax Download/CD in Forms mode on the QBI Component form for each Schedule E by entering Not Applicable in the first box, "aggregate trade or business name".

@Leolover

[Leolover]

Hi David, thanks.  I'm always uncomfortable guessing about how to handle a new policy.  Do you have any documentation to show this is the correct route to take?  Do you think it would be more of a red flag to not check the box that says my income qualifies for QBI even though it does qualify?  If I don't check that box it stops all the future questions.  I guess the whole thing confuses me.  Why is this even a question for people who are filing on a 1040 instead of a schedule C?  Ive never filed as having a schedule C business for my real estate.  Always just included all my profits/loss on Schedule E.  I have a whole separate career that is w-2 and that's why I choose the 1040.

If I do take the route your choose and put NA in the business and my SSN as the EIN, is that not setting off a red flag that I should have a schedule C? 

Sorry for all the questions but this is such a confusing new policy..

[JohnB5677]

This is from an article in the Journal of Accountancy: See full Article.

Is a rental real estate activity considered a trade or business for tax purposes, or merely an investment? This question has entered the spotlight with the qualified business income (QBI) final regulations issued this year (T.D. 9847). The 20% QBI deduction under Sec. 199A introduced by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, is available only for activities that qualify as a trade or business

The final QBI regulations offer three avenues for a rental real estate activity to be considered a trade or business eligible to generate QBI: (1) the rental activity qualifies as a Sec. 162 trade or business; (2) it rents to specific related parties; or (3) it satisfies the requirements of a proposed safe harbor.

[Leolover]

Thanks John,  I have gone through everything and what I do qualifies as QBI and safe harbor.  I guess I'm just uneasy about not having a SP or LLC to fill in the requested lines.  I should use NA and my SSN and just hope for the best?

Also, I don't have profits.  I only have losses which is the other reason I'm trying to avoid this whole situation.  I have nothing to gain by the deduction.  The article states "Negative QBI offsets positive QBI from other sources and potentially carries over to subsequent years. Therefore, careful consideration should be made in classifying a rental activity that generates losses as a trade or business for QBI purposes." which is my situation.  Id love to just bypass the entire question but I think it looks strange saying that I'm a real estate professional that is actively participating but the expenses do not qualify for QBI.  Another vague new tax law by our marvelous government..

[KrisD15]

Yes, you would use your social security number. 

The IRS does require that taxpayers report expenses and loss. 

It seems this law is still getting tweaked and clarified, but this is how you do it for tax year 2019. 

[Leolover]

Thanks Kris!  One of my properties is a commercial.  Did I read correctly that commercial properties do not qualify for QBI?  If so, what should I choose for the options Turbo Tax asks for this section?

Thanks

[DavidS127]

No, there is no prohibition on commercial rental properties treated as a QBI business.  If it is a "mixed use" property, you have the choice to treat it as one property or split it into two properties.   IRS Revenue Procedure 2019-38 section .04 Rental Services. on page 4 of the PDF at this link provides details about that.

The TurboTax question you are getting to "enter Name and EIN" is not an IRS requirement, it is a TurboTax calculation step.  For your situation, you can enter any name in the Name box (e.g., the name you are using for the rental in TurboTax) and leave the EIN box blank.

You may also be interested in this  See the IRS article on the rental real estate safe harbor at this link for an overview of the safe harbor requirements.

Lastly, both the Schedule C and the Schedule E you are using are part of a Form 1040 tax return.  Schedule C is used to report rental activities when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer.  See the section of IRS Publication 527 at this link for more information.

@Leolover