Rental real estate to have Qualified Business Income (QBI) deduction

[lameri]

Hello,

My understanding is that in 2019, if you had several rental properties, all of them need to meet the following requirements:

https://www.irs.gov/newsroom/irs-finalizes-safe-harbor-to-allow-rental-real-estate-to-qualify-as-a-b...

However, TurboTax seems to list as well that the rental has not been used at a property for any part of the year. How come the IRS doesn't list it? Is it or is it not a requirement?

Thanks!

[GeorgeM777]

Yes, it is a requirement that the rental property not be used as a residence by the taxpayer for any part of the year in order for the taxpayer to obtain the Qualified Business Income deduction.   Upon opening the link you provided, there is the IRS Notice which summarizes the recently issued Revenue Procedure 2019-38 that addresses rental properties and the QBI deduction.  In that IRS Notice, on the first line, there is another link to the actual Revenue Procedure 2019-38.  On page 7 of Revenue Procedure 2019-38, is where you will find the type of rental property arrangements that cannot take advantage of the QBI deduction.  

Page 7 of Revenue Procedure 2019-38 provides the following: 

• 05 Certain rental real estate arrangements excluded. The following types of property may not be included in a rental real estate enterprise and are therefore not eligible for the safe harbor: (A) Real estate used by the taxpayer (including an owner or beneficiary of an RPE) as a residence under section 280A(d). (underline and bolded text added)

It appears that the IRS Notice just provides a summary of what is contained in the actual Revenue Procedure 2019-38 but is not a substitute for same.  

[lameri]

Thanks for pointing that out.

So if someone converts a residence to real estate in the middle of the year, the year that happens, the property cannot be part of the QBI deduction? You need to wait until the following year?

[DianeW777]

You are correct, assuming it meets the requirements in the following year.  The details of safe harbor are posted here for you convenience as well.

• Revenue Procedure 2019-38

@lameri

[Carl]

So if someone converts a residence to real estate in the middle of the year, the year that happens, the property cannot be part of the QBI deduction?

I can't seem to find anything that clarifies that. One way I interpret/understand it, is if you have any personal use, you don't qualify for QBI.

  At least, that's what is clarified/defined as "personal use" days (for claiming rental expenses) in the example on page 17 of IRS Publication 527 at https://www.irs.gov/pub/irs-pdf/p527.pdf. There's a period of time of personal use before it was converted to a rental, and the example shows that time has to be included when figuring the percentage of rental expenses that can be claimed.

[tagteam]

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@Carl wrote:

So if someone converts a residence to real estate in the middle of the year, the year that happens, the property cannot be part of the QBI deduction?

I can't seem to find anything that clarifies that. One way I interpret/understand it, is if you have any personal use, you don't qualify for QBI.

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That is spelled out in the Revenue Procedure that @DianeW777 posted.

rp-19-38.pdf (irs.gov)