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IRS Clarifies Whether Rental Real Estate Qualifies for QBI

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.