QBI For Commercial Real Estate rental income that is rented to a business materially participated in

[mpdugg]

Hi,  I'm filing for 2020.   

We have an LLC, Domestic Partnership (50/50 ownership by my wife and I) that owns an office condo.

The condo is rented to an S-Corp that employs my wife (she materially participates in).  The business income from the S-Corp does qualify for the QBI deduction.     The S-Corp is categorized as an SSTB, but we are filing jointly and our taxable income is less than the $326600 threshold. 

I don't think I can get the QBI deduction for my 50% of the rental income profits from my Schedule K from the LLC, but I think the rental income for my wife's 50% of the rental income profits from her schedule K, from the LLC  should qualify for the QBI deduction.   

When I answer all the questions entering the Schedule Ks,  it isn't showing a QBI deduction for the schedule Ks for the rental income.     

Turbo Tax does show the QBI for the SCorp business income correctly.   

 Please let me know if I'm interpreting the QBI rules correctly and if I should be seeing the QBI deduction for any of the rental income from either schedule K from the LLC? 

Thanks!

[tagteam]

This appears to be a self-rental scenario, so the rules are somewhat more complex.

Regardless, there should be a figure on the K-1 on Line 20 with a "Z" code (which represents the Section 199A information).

[mpdugg]

Hi, That is correct on the "Z" code, and I enter everything in to turbo tax but it shows a QBI deduction of $0 still. 

I'm trying to determine if I'm correct or not that for my wife's K-1 she should be getting the QBI deduction.  I think yes, so I want to confirm before giving up on getting the deduction.  I want to make sure it's not a SW bug. 

Cheers,

Matt 

[tagteam · Accepted solution]

Are you absolutely certain there is no input error?

When you prepared the return for the LLC, there should have been a Statement A generated along with the K-1. Do you have a Statement A?

Further, did you enter the 199A information requested by the software? Under "business income" (if you checked that box), you should see a line for "rental income". 

[Mike9241]

line 20 info carries nowhere. the QBI info off each k-1 for the rental must be entered in the QBI section of the k-1.

[tagteam]

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@Mike9241 wrote:

line 20 info carries nowhere.

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It carries to the screens after the primary K-1 input screens.

Obviously, the user needs to enter the figure from Line 20 with a Z code.

[mpdugg]

That is what I was missing.  The fact that the checkbox was called "business income" I did not realize selecting it caused a sub list of check boxes.   I was looking for "Rental Income", not "business income" which is why I missed it. 

Thanks!