Rental Property - QBI Qualification Questions

[cchilton18]

Hello,

In 2024, I started renting my first rental unit.  The rental for the unit started on 5/15/24 and before that time, my wife and I had been using it as our primary residence.  

Over the course of 2024, the unit has been rented since 5/15/24 through 12/31/24.  The rental property is managed by myself and I have contracted with no other employees or contractors to manage the rental.  As I am filing my taxes for 2024, I am trying to determine if my single rental property qualifies for the QBI deduction.

First, I know I do not qualify for the QBI Safe Harbor because I have not spent more than 250 hours performing rental services for this property by myself, by my wife together, and we hired no other individuals for rental services.  However, considering the other factors for QBI, I lean more towards qualifying myself than not.

For more detail:

  1. Performed rental services for at least 250 hours (you or someone you hired)

As discussed above, neither myself, my wife, nor us combined meet this time threshold.

  2. Kept separate books and records showing income and expenses

Yes, I do keep separate records showing income and expenses related to the rental.  My unit has its own bank account where all income is deposited.  The only financial crossing between my rental and personal expenses is purchases made on my credit card for the rental as I do not have a credit card specifically for the rental.  For example, I pay for air filters, water filters, pest services, and so on for the rental.

  3. Didn't use it as your residence

Since 5/15/24, the rental has not been used as my primary residence.

  4. Didn't lease the property under a triple net lease

No the property/rental lease is not under a triple net lease.

  5. Didn't rent the property to a commonly controlled business

No the property/rental is not to a commonly controlled business but rather third party renters.

Outside these metrics above, I am in intermittent communications with my tenants.  While we are not communicating weekly, we approximately once a month regarding how the rental is going, if there are any concerns with the unit, if there is anything they need me to do for them and so on.

In conclusion, I lean towards my rental being QBI deductible, but would like to have a discussion on my logic from above for confirmation.

[ThomasM125]

You would qualify for QBI treatment if your rental qualifies as a trade or business. Per this article from the IRS a trade or business is an activity carried on for the production of income from selling goods or performing services:

You are providing a service in that you are actively involved in the maintenance of a rental property that is available for tenants to rent. So, you have a good argument that it would qualify for QBI treatment. It would be different if you were a silent partner in a rental activity where you only had a financial interest in the enterprise.

[Nicote]

This is the kind of question that an CPA would answer and given that you are using TurboTax I'm guessing that you are not planning to use a CPA. Therefore you have to answer it for yourself and be willing to sit across from an auditor and explain your decision if you get audited. If you think you met the criteria, then just take the QBI deduction and move on with your life. This decision is not going to get you into hot water with the IRS even if you get audited.