Can I get the QBI deduction on rental income - IF i use a Property Manager

[DumbDadLTG]

I found the very good answer/info from TurboTax on the general question of

"Can I get the QBI deduction on rental income? "

I fall under the "everybody else" category in that answer. I use a Property Manager to help manage a single property that I own and have been renting to the same tenant since their original occupancy (9/2021). For 2021 I did not claim QBI because I had a loss among other reasons (because of Improvements, section179, etc. getting it in rentable condition).

However for 2022, I do have a significant profit but I'm unsure if the PM's time counts toward the 250 hour threshold?? I did not find this question specifically addressed in the forum.

How about multiple contractors I used for general maintenance as well as trouble/shooting/repairs - Can I estimate/include their time as part of that 250 threshold? .

I think between my time, PM's time and contractor's time, collectively the 250 hours were exceeded.

My own interactions directly with the PM probably exceeded 100 hours (kind of a tough year due to circumstances), and THEIR general business duties as a PM (that I pay for as a % of rent collected), add to that. I doubt I could get their time records...is that a show stopper?

Appreciate the help!

[tagteam · Accepted solution]

The IRS says these hours include services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to rent the property. However, hours spent in the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, and traveling to and from the real estate, will not be considered hours of service for the enterprise.

See https://www.journalofaccountancy.com/news/2019/sep/rental-real-estate-safe-harbor-qbi-deduction-2019...

[DumbDadLTG]

Thank you for the quick response. I should have been more specific since I've read that the IRS interpretation and even accountant opinions can vary on this. so I want to make sure I'm as clear as possible.

I've read the terminology in your and other links..."... by owners, employees, (owner's agent),and independent contractors....."

I have not seen the term "Property Manager" on your link  - or other similar sites/searched

1. Is "Property Manager" concerned an "Agent" by IRS definitions?

2. For  "Independent Contractor" - here's an example of how my scenario plays out:

I pay for a Gardner to go on site once per month for 2 hrs. My scheduling of him, paying, and getting any updates from his visit adds ~ 1/2 hr of MY time each month. My communication/confirmation back with the Property manager (so that they can notify the tenant - i am discouraged from having drect comms with Tenant) in this case probably adds another 1/2 hour of MY time, and PM's coordination with tenant maybe 1/2 hour of THEIR time (tenant is kind of fussy about having input to when others show up on site).  If those individual amounts can be reasonably documented, for QBI purposes, is the total hours associated with this service, 2 +1/2+1/2+1/2=3.5 hrs? Even if I squeeze the admin to 1/4 hour each, I'm at 2.75 hrs.

Not the most efficient, I understand, but given this is how I am presently handling this tenant, is this a reasonable interpretation of the QBI determination/metrics??

Appreciate your/others input.

Thx!

[tagteam]

Property managers are generally "agents" of the owners (who are principals). Your property manager is almost certainly an independent contractor unless you pay your property manager a salary or wages (in which case the property manager would be your employee).

Essentially, an independent contractor is anyone you hire to perform some sort of service on your property and would not be considered your employee under the guidelines.

Sere https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...