Qualified Business Income (QBI) of a rental home

[jawckey]

Hello,

I looked through earlier QBI discussions about rental income at this portal. They are more confusing than clearing it! They talk in terms of explaing the IRS rules once more than clarying a particular situation clearly. So I had to ask this in light of my very very specific situation. Please clarify if I can take QBI deduction on my rental income.

- I have two rental homes.

- Both homes are within the same city limits though at different locations.

- Both don't have any mortgage liabilities.

- They are both managed by the same rental agency that I hired and pay some fees.

- Only expenses on the rentals thus rental management fees, insurance, property taxes, repairs, HOA fees.

- Currently net rental income is profit after netting rent with all expenses and depreciation.

- I file jointly with my wife and our combined AGI crosses half a million in 2024.

- Both of us are not in real estate business.

- And we are not in any Specified Service or Business (SSTB) nor the tenents. The tenents are just normal families that rent and stay leased for a year.

With this background, please help with the following 2 questions.

1) Can we take QBI deduction on our rental income. It may be reduced due to our AGI but can we deduct QBI or not is the main question.

2) Can our rental business be treated as part of a combined business by combining both rental homes and their income into one business. It is the only business we own.

I highly appreciate a crisper clarification for my situation which I was not able to arrive at studying the postings so far. Please help.

regards

[jawckey]

So far nobody responded. Please see if anyone could help or if I am missing any info. Appreciate it.

regards

[PatriciaV · Accepted solution]

Yes, your rental activity should qualify for the QBI deduction, subject to the taxable income limits.

Yes, you should be able to combine these rental properties for QBI purposes. Note that once you aggregate your businesses, you must do so on all future tax returns.

For more information, see Should I combine my businesses for the QBI deduction?

[jawckey]

Hi  PatriciaV

Thanks a lot for crisp and clear clarification. I also read through the URL you provided.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/accounting-bookkeeping/aggregate-combine...

It says there is no benefit to joint filers if income $383,900 or less. Since our income is more than this in 2024, though there would be benefit for 2024. But 2025 onwards our joint filer income will be no where even close to $383,900. Since this URL says once we combine the two rentals, we have to do it forever, if our joint filer income in 2025 and onwards is guarranteed to be less than $383,900, is there a disadvange to combine them for 2024 and thus need to keep them combined forever?

Please help with this quesiton too.

regards

[PatriciaV]

Yes, it's important to consider the future effects of combining your properties this year. You may wish to set up a projection for the estimated income over the next five years and compare the total QBI deduction to what you would gain this year. If this year's deduction is significant, it may outweigh the total QBI over the next five years.

Although you can use TurboTax to create estimated returns (using current year tax rules), it may be easier to simply set up a spreadsheet for this analysis.