Claiming a deduction your income tax return reduces your taxable income and you pay lower income tax on your taxable income. You may qualify for Qualified Business Income (QBI) Deduction which reduces your taxable income up to 20%.
Qualified Business Income (QBI) Deduction Summary
Examples of pass-through business entities used in real estate include
Types of income that are considered qualified business income
What is considered a RREE?
The taxpayer’s primary purpose is to generate a profit from the rental property business, and your involvement in this business has been continuous. In this scenario, a rental real estate enterprise (RREE) has been considered to be established for each rental property or group of similar properties (such as a group of single-family rentals). The taxpayer should note that commercial and residential properties may not be part of the same enterprise. You cannot vary this treatment from one year to another unless there has been a significant change in facts and circumstances.
HOW DO I DETERMINE IF AN RREE IS ELIGIBLE FOR THE QBI DEDUCTION?
Once an RREE has been established, the taxpayer must determine if they qualify as a ‘trade or business’ and are eligible for the Qualified Business Income (QBI) deduction.
You may need to look into “Safe Harbor Tests” and see if the following requirements are met for the particular tax year and your RREE should be considered as a “trade or business” for the purposes of the QBI deduction:
For purposes of the 250 hour rule, the following are considered rental services:
Last but not the least, you should also be aware of the followings or you may need to contact a tax professional.
—Triple net leases between related parties with common control (50% or more) generally qualify for the QBI deduction
—Taxpayers making the safe harbor election must include a statement with their tax return indicating they have met all safe harbor requirements
—Income earned by a C corporation or by providing services as an employee is not eligible for the deduction.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.