Qualified Business Income

[staceytcrawford]

I own two rental properties in an LLC.  I have listed both under the "Rents and Royalties" section on Turbo Tax.  I show a loss for one rental property and a gain for the other.  I do not take the QBI Safe Harbor but do feel like the income is qualified.  When I select "Yes" on the "Is this Qualified Business Income" question for rental property #1, my tax liability decreases.  When I answer the same question the same way for rental property #2, my tax liability increases back to what it was originally essentially making zero difference on my tax return.  Any idea why this is?  Should I claim QBI for one rental property and not the other?  

[AmyC]

If you spent the required 250 hours on a rental house to claim QBI, then you can claim it. If you do not meet the time requirements, do not claim QBI. 

Reference: Can I get the QBI deduction on rental income?

[staceytcrawford]

The Turbo Tax explanation reads as the 250 hour requirement must be met to claim the Safe Harbor QBID but not to elect to be classified as a qualified business. To be a qualified business it must be classified as a trade or business, the activity must be US based, and the income must not be wages. All of these criteria are met. I am not questioning how to classify. Rather, I am questioning why classifying one rental property as a qualified business would be beneficial for me tax wise and the other have the opposite impact; therefore, having zero impact on my taxes.  

[ThomasM125 · Accepted solution]

QBI will be negative if you have a loss from a QBI business. So, if the second rental is showing a loss, qualifying it as a QBI rental would reduce QBI from other business, thus reducing your QBI deduction which would increase your taxable income and associated income tax.