Question

Qualified Business Income deduction for residential rental property on Schedule E

Forum|Forum|2 years ago
January 4, 2024
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Hello, can someone help us figure out whether we're eligible for the Qualified Business Income deduction? We own a single-family rental property and we file a Schedule E every year. The house is subject to depreciation. Because of the depreciation, we often have a net loss on the property. But without the depreciation we would have sometimes had a net gain. Do we qualify for the QBI deduction? Does the depreciation matter when figuring out qualified business income? We have never taken the QBI deduction before, but now we're wondering if maybe we are missing out on a legitimate offset. Thanks.

A

Anonymous_

Employee

Your rental property has to rise to the level of a Section 162 trade or business (which is typically doubtful) or you need to meet the requirements of the safe harbor in order to take the QBU deduction.

See https://www.irs.gov/newsroom/qualified-business-income-deduction

and

https://www.irs.gov/pub/irs-drop/rp-19-38.pdf

T

TaillesQueriesAuthor

Thank you. So hypothetically, for a property that would otherwise qualify for QBI, does the depreciation matter for this calculation? For example, let's say someone has $4000 of depreciation on a rental property annually. And let's say they would have a $3000 net gain from rent on the property if there were no depreciation. But since they are taking the depreciation write-off, they can therefore declare a $1000 net loss from the rental. Would this entity be eligible for the QBI deduction? Again, assuming that the rental activity qualifies in all other respects. In other words, would this be treated as $3000 of income or as $1000 of losses when calculating QBI? Thanks again.

A

Anonymous_

Employee

The amount of deductions (and type of deductions), including depreciation, is not relevant for the purposes of determining whether or not the QBI deduction is allowed.