Not an easy question to answer.
SEC. 162 TRADE OR BUSINESS
The regulations offered ambiguous rules to determine whether a rental real estate activity qualifies as a trade or business for QBI purposes. The final QBI regulations define a trade or business as a Sec. 162 trade or business other than performing services as an employee. Case law provides that a Sec. 162 trade or business entails a profit motive and requires considerable, regular, and continuous activity. A sporadic activity or hobby does not qualify for this purpose. The final QBI regulations offer several factors for analyzing whether a rental real estate activity is a Sec. 162 trade or business:
The type of property rented (commercial versus residential);
The number of properties rented;
The owner's (or the owner's agents') day-to-day involvement;
The types and significance of any ancillary services provided under the lease; and
The terms of the lease (e.g., a net versus a traditional lease and a short-term versus a long-term lease).
The final regulations' preamble also notes that an activity treated as a Sec. 199A trade or business should also be treated consistently under other Code sections. For example, a tenancy in common renting real estate as a Sec. 199A trade or business should also be treated as an entity separate from its owners under Regs. Sec. 301.7701-1(a)(2). The preamble also says a factor in the appropriateness of treating a rental activity as a trade or business under Sec. 199A is whether the taxpayer complies with the requirements of Sec. 6041 (i.e., files required reporting forms, such as Form 1099-MISC, Miscellaneous Income). These factors encourage a case-by-case analysis. Rental activities with no active management likely do not qualify.
but then the IRS issued safe harbor criteria
PROPOSED SAFE HARBOR
The IRS issued Notice 2019-07 concurrently with the final QBI regulations. It provides proposed safe-harbor requirements for a rental real estate activity to qualify as a trade or business for QBI purposes. Note that the safe harbor does not need to be satisfied if the rental activity is otherwise considered a Sec. 162 trade or business
carefully read its provisions, notably:
a) Separate books and records must be maintained for the rental real estate activity;
b) For tax years beginning prior to Jan. 1, 2023, at least 250 hours of rental services must be performed each year with respect to the rental activity by owners, employees, agents, and/or independent contractors;
Contemporaneous records of services performed must be maintained for tax years beginning on or after Jan. 1, 2019;
c) Real estate rented under a triple net lease in which the tenant or lessee pays for taxes, fees, insurance, and maintenance is not eligible for the safe harbor;
d) Real estate activities are not considered a trade or business if real property is used as a residence as defined in Sec. 280A (i.e., it is used personally by an owner for a number of days that exceeds the greater of 14 days or 10% of the number of days during the year in which the property is rented at a fair rental); and
e) A statement signed under penalties of perjury must be attached to the taxpayer's tax return that indicates the safe harbor has been satisfied.
real estate professionals would meet the trade or business criteria because this is where they generate most of their income and spend most of their time. they own numerous properties or a few large commercial properties with multiple tenants.
I'm of the opinion you would have to meet the safe harbor criteria to classify your 2 properties as qualifying for QBI. but as noted you can group the two properties to see if you meet the criteria rather than looking at each separately.
