@BKUrban Trust can benefit from QBI but, do note the IRS in order too help avoid abuse of the QBI deduction for trusts, two or more trusts will be treated as one if the trusts have substantially the same grantors or primary beneficiaries and the principal purpose of the trust is to avoid income tax. There would need to be a significant non-tax purpose to separate the trusts, in order to prove income tax avoidance wasn’t the purpose of the trust.
BE CAREFUL IF YOUR NET RENTALS ARE A LOSS AS YOU WOULD RATHER THEM NOT QUALIFY AS QBI THEN AS THAT LOSS ROLLS FORWARD. In simple words, the threshold to meet QBI you may better off not be met if you have net losses. Most rentals operate as losses.
- Net rental income from a self-rental property is treated as non-passive** income. They can meet QBI still.
- Net rental losses from self-rental property are treated as passive** losses.
The result is that self-rental income, for the landlord, is essentially reported on a “stand alone” basis. The income derived from this self-rental cannot be used to offset any other rental losses, even if the losses are from other, commonly owned self-rental properties. This is true even if there are self-rental losses originating from other businesses that also have material participation by the same taxpayer.
QBI RULES:
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 usually treated as passive activities, and passive activities 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, which means they could potentially qualify for the QBI deduction.
To provide preliminary guidance to this popular question, the IRS released Notice 2019-07, the key points of which we've summarized below.
Exclusions
Real Estate Professionals
Everybody Else
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