How do I know if my rental property qualifies for the Qualified Business Income deduction (QBID)?

TurboTax will ask a few questions to make sure your property is a Self-rental.

If you rent the property to another business you own and materially participate, your rental will automatically qualify for the QBID.

Example: If you select Self-rental, we’ll ask if you materially participated in the operations of the rental property. 

We’ll ask this question again on the Is this Qualified Business Income? screen.

You’ll be asked questions to determine if your rental is qualified for the QBID based on one of these options:

1. Safe harbor provisions (IRS Notice 2019-07).
2. Real estate enterprise (the election to combine the property with other properties, Revenue Procedure 2019-38).

If you choose either of these, we'll provide an additional form to sign an mail with your tax return.

If your rental property is part of a real estate enterprise, we’ll ask questions to confirm: 

1. The type of real estate enterprise(residential, commercial, or mixed-use).
2. Whether an enterprise statement is already set up for your return. 

As you add more rental properties to your Schedule E, you can add them to the real estate enterprise as needed.

Even if you choose None of these apply for the safe harbor elections, TurboTax will ask you one more time Is this Qualified Business Income?. That’s because it can be difficult to determine if the IRS will consider an activity a trade or a business. They handle these situations on a case-by-case basis, so we have to allow you to decide whether or not your rental activity qualifies. 

Select the More info about what’s considered a qualified business link for additional information. 

Anything you choose that qualifies your rental activity for the QBID will be followed by more specific questions.

1. On the Let’s cover some uncommon situations screen, we’ll ask if you need to make any adjustments, if there are deductions from other topics related to this business, and/or if this business has wages. Select Learn more for more info about these options.
2. On the We’re almost done screen, we’ll ask questions to determine if your rental activity falls under the specified service trade or business (SSTB) rules.
3. For a rental activity, the next screen Does this business receive income from a specified services business with common ownership? may apply to self-rentals.
4. Finally, we’ll ask Should this business be treated as a part of a combined business? When you have more than one business with QBI, we’ll ask if you want to combine or “aggregate” these businesses for the QBI deduction.

For details about the IRS criteria for combining businesses for the QBID, select the link: Shares common ownership and operates co-operatively with another business.

If your 2020 taxable income is $164,900 or less for Single status, or $329,800 or less for Married Filing Jointly status, there’s no advantage to combining your rental activities for QBI purposes. You can always choose to combine them in a later year if your income level makes that advantageous, as long as they meet the IRS criteria for combining businesses for QBI.

However, once you combine (aggregate) businesses for QBI purposes, you must continue to combine them in future  years.