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QBI for rental property

I am going to put this question out there one more time in hopes of an definite answer. I already have read what is posted on google and in TT, which does not give a clear answer.

 

My parents are in their 90s and have owned rental property for many years, at times multiple properties, but have sold all but one rental house. 

 

I have been all over trying to figure out if they qualify for this deduction since the language is so vague.

 

They have a separate account for their rental property and keep income and expenses separate.

In terms of the 250 hours per year, probably not that much but the property management does interact, and my parents make all the decisions.

 

So yes or no? I am not sure why there isn't more of a definite answer to this in the tax forms!

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1 Reply

QBI for rental property

why no definite answer?  Because the IRS rules are not definite (there is no definition of trade or business in the code or regulations) so cases end of in court unless the taxpayer decides not to contest an adverse IRS finding.  the 250 hours etc are only safe harbor which means if you meet them the IRS can't question the QBI. if a taxpayer doesn't it doesn't mean they can't claim QBI but then the burden of proof switches to them.

          The courts have generally  held that that a rental activity is a trade or business when the taxpayer is involved on a regular basis and continuous basis  even if through an agent. Factor considered for determining whether a rental real estate activity is a trade or business sufficient, continuous, and substantial enough to constitute a trade or business include the following (Keefe TC Memo 2018-28)

   Among the facts considered are the taxpayer's efforts to rent the property; the maintenance and repairs supplied by the taxpayer or an agent of the taxpayer; the taxpayer's employment of labor to manage the property or provide services to tenants; the purchase of materials; the collection of rent; and the payment of expenses. See Alvary v. United States, 302 F.2d 790, 796-797 (2d Cir. 1962); Gilford v. Commissioner, 201 F.2d at 736; Pinchot v. Commissioner, 113 F.2d 718, 719 (2d Cir. 1940); Balsamo v. Commissioner, T.C. Memo. 1987-477; Grier, 120 F. Supp. at 398. The totality of the facts and circumstances surrounding the use of the property must support a conclusion that the alleged rental activities were sufficient, continuous, and substantial enough to constitute a trade or business with respect to the rental of the property.

 

so if the safe harbor is not met it comes down to what the taxpayer concludes as to these tests (in Keefe the taxpayer could not even establish that they tried to rent the property so they lost all the deductions and were hit with accuracy related  and substantial understatement penalties)

 

you may not be aware of this but on some tax issues even the tax courts don't agree 

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