about the only time rental real estate is entered on schedule C is when you provide significant services to your tenants (like a B&B) who rent for the short term generally 7 days or less. this doesn't mean other rentals can't be a business for purposes of the QBI deduction.
- The rental activity qualifies as a Section 162 trade or business (the short-tern significant services route - such income is subject to self-employment tax)
- The rental activity rents to specific related parties
- The rental activity satisfies the requirements of the proposed safe harbor
Rental properties are typically treated as passive activities, which are excluded from the definition of a qualified trade or business. However, the safe harbor provision mentioned above allows certain interests in rental real estate to be treated as a trade or business for QBI purposes.
To meet the safe harbor requirements, your rental real estate enterprise must meet the following criteria:
- Separate books and records must be maintained for each rental real estate enterprise
- At least 250 hours of rental services must be performed each tax year
- Contemporaneous records, including time reports and logs, should be maintained to document the hours spent on rental services
Remember, the safe harbor rule applies to both residential and commercial properties but doesn’t extend to residences used by the taxpayer as a personal residence during the tax year. Additionally, real property rented under a triple net lease does not qualify for the safe harbor.
an LLC is a disregarded entity so each property is separate and should be reported as such on Schedule E.
for QBI purposes unless you aggregate all 3 units each property must meet the above tests -that's 250 hours each for a total of 750 hours.
you can aggregate them all. then they are treated as 1 enterprise that has to meet the above rules so only 250 hours is required.
it's an all or none situation for similar type rentals. all residential rentals would be aggregated as 1 enterprise and all commercial rentals would be aggregated as 1 rental enterprise. but you can not aggregate commercial and residential. as 1 enterprise.
