Why is it not necessary to aggregate rental properties when income is less than $329,400?

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I am still trying to understand rental property aggregation for the purpose of QBI income, Form 8995.  I am NOT a Real Estate Professional.  Can someone explain why Turbo Tax says, "It is not necessary to aggregate rental properties" (for the purpose of the QBI income deduction), when your married filing jointly income is less than $329,800?  Why is it not necessary?  

Thank you.

[DawnC · Accepted solution]

Because if you are married filing jointly and have AGI less than $329,800, your QBID (qualified business income deduction) will not be limited.   If you qualify for the deduction, it won't be limited, so there is no benefit to be had from aggregation.  

• At incomes below that level, the deduction is 20% of either taxable income (minus capital gains and dividends) or the QBI, whichever is less.
• At higher income levels, the deduction is reduced or eliminated, depending on the nature of the business and

          The W-2 wage or unadjusted basis immediately after acquisition (UBIA) limit - This article references 2020 numbers, but the substance is relevant.   

Passive rental income, generally, does NOT qualify for the QBI deduction.   However, real estate professionals and rental real estate enterprises (a rental property or group of similar rental properties, including K-1 rental income) may qualify for the deduction.   See the Everybody Else section in this FAQ.    Real estate enterprises are already one business when it comes to taking the QBID, without aggregating.   If the one rental enterprise has 3 properties and that is all of your income - you only have 1 QBI-eligible business, so you can't aggregate.   If you aggregated multiple businesses/real estate enterprises in the past for QBI, you must continue to do so.   

Should I aggregate?   Be careful, see last bullet - you are not allowed to disaggregate the businesses on future tax returns.  This is not a decision to make on the fly.  Aggregation can be a very useful tool, but it can also lead to a lower QBI deduction. 

In addition to excluding SSTBs, the other requirements for aggregation, described in detail in Regulation 1.199A-4, are as follows:

• Each of the trades or businesses to be aggregated must meet all other requirements to qualify for the qualified business income deduction on its own.
• With the common control requirement, the same person or group of persons must directly or indirectly own 50% or more interest in each business for the majority of the taxable year.
• Business income from the entities to be aggregated must be reported in the same taxable year on the same tax return.
• Businesses to be aggregated must demonstrate a level of business integration by satisfying at least two out of three of the following:
  • The businesses provide products, services, and property that are the same, such as restaurants and food trucks, or products and services that are customarily provided together, such as gas stations and car washes.
  • The businesses share facilities or centralized business elements; for example, personnel, human resources and accounting functions.
  • The businesses are operated in coordination with, or reliance on, other businesses in the aggregated group, such as supply chain dependencies.
• The aggregation must be disclosed every year on an attached statement to the return (provided in Form 8995-A, Schedule B).
• Once an aggregation has been formed, it must remain consistent from year to year and may not be disaggregated unless there is a significant change in facts and circumstances.

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Dawn C,

Thank you very much!  Your answer was thorough and clear.  I now understand fully why aggregation of rental properties for non-real estate professionals for QBI purposes is not necessary when income is less than $329,800.  I really appreciate your help!