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IRS Clarifies Whether Rental Real Estate Qualifies for QBI

Last October on the Taxing Subjects Podcast, Drake Software’s Bob Nolan, CPA EA and Olena Romanchuk, CPA discussed the then-new proposed regulations for the Section 199A qualified business deduction (QBI) for pass-through entities. While October’s REG-107892-18 provided fairly clear-cut answers regarding what qualifies, our guests mentioned that there were a few areas that needed further explanation, specifically citing the treatment of rental income as a potential problem.

Luckily, the Internal Revenue Service recently released a notice and final regulations clarifying a number of issues, including whether rental property would be considered eligible for QBI. Since QBI is essentially the pass-through version of the new 21% corporate rate that was included in the Tax Cuts and Jobs Act—allowing a deduction of up to a 20% of qualified business income—it’s a topic that has drawn a lot of interest.

According to a recent IRS Newswire, the newly released guidance for a QBI safe harbor that “allows individuals and entities who own rental real estate directly or through a disregarded entity to treat a rental real estate enterprise as a trade or business for the purposes of the QBI deduction if certain requirements are met.” That said, if the taxpayer’s taxable income exceeds $157,500 ($315,000 if filing jointly), the deductible amount is subject to specific limitations. Aside from clarifying the treatment of business rental income in QBI, the IRS also released a revenue procedure explaining how W-2 wages are handled.

Here are the relevant IRS publications listed in the press release:

If you’re interested in hearing the QBI podcast, you can it find on DrakeSoftware.com or download it from iTunes

Source: IRS Newswire

Ryan Norton

Whether designing superheroes, penciling caricatures, or just doodling, I always knew I was going to earn some sort of art degree while in college. That was my goal before I decided to trade Edgar Degas for Edgar Allan Poe during a Freshman English class. The BA in English soon morphed into a double-major in English and Philosophy, eventually becoming an MA in English. It only makes sense that I learned of a writing opportunity for a local marketing firm while teaching a first-year college English course. Before I knew it, I was writing and editing tax-related articles for Taxing Subjects, and this has been my home since 2014.

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