QBI or Enterprise for rental properties

[ue1]

In 2020 I used the QBI for multiple rental properties I own (schedule E).

For this year (2021 taxes), I opted to include all my rentals in an enterprise, but apparently it is not allowed in combination with the QBI, so I have to select one or the other.

I am not a RE professional but do spend a lot of time managing these properties, and my objective is to be able to deduct rental properties' operating losses from my W-2 income. However, no matter what I choose - QBI or Enterprise, Turbo Tax does not allow me to combine the two and regardless of my choice, I do not get a deduction of operating losses (they become suspended, I believe).

Q: What do I need to do in order to be able to deduct those operating losses?

[KrisD15]

You would need to file a Schedule C OR  Actively Participate in the rentals. 

Linked Answer

[ue1]

Thank you @KrisD15 .

I am using schedule E at this time, but do not get the available deduction of up to $25,000 of losses.

I do actively participate in the rentals, based on the IRS definition, but TurboTax does not let me benefit from it.

Any idea why?

To be sure, how can I verify these losses are not deducted from other income sources I have?

[KrisD15]

The loss would be reported on Schedule 1 Line 5.

You need to be able to answer the questions regarding "Did You Materially Participate in this Rental Property" and the interview which follows in the rental section of the software. 

You would need to be an Active Participant. 

You can switch to Forms if using TurboTax Desktop and look at the Schedule E Worksheet. 

In either program you can look at Schedule E.

You can look at Form 8582 Passive Activity Loss Limitations to see if the rental loss is being limited. 

[ue1]

Thank you @KrisD15 .

I answered yes to "Did You Materially Participate in this Rental Property" in the interview questions.

8582 does not allow me any Passive Activity losses because AGI is higher than the set threshold.

Move to schedule C?  Anything else I can do?

[ColeenD3]

You can't use Schedule C for rentals unless you also provide a service. A bed and breakfast qualifies because they serve meals. A motel qualifies since they provide maid service. A straightforward rental does not.

If I understand correctly, you want to take your loss on Schedule E but your AGI is too high. Only RE professionals are allowed to do this.  While the second qualification is doable if you have a job, it is very unlikely that you would meet the first.

Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.

• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

• You performed more than 750 hours of services during the tax year in real property trades or businesses.

In a number of court cases, individuals who worked full time in a non-real estate activity were unable to meet the requirements to be a real estate professional. Proving that at least 50% of the taxpayer's personal services during the tax year are performed in rental real property trades or businesses may be very difficult to establish for an individual who is employed for significant hours in a non-real estate business.

RE Professional