Topic 04 · 5 min read
The QBI Deduction for Rentals
A possible 20% off the top of rental profit.
Qualified Business Income, or QBI, is a deduction of up to 20% of the profit from a pass-through business. Rentals can qualify when they are run like a business rather than held passively, which makes recordkeeping worth real money.
What to know
- Trade or business first
- The rental must rise to the level of a trade or business — regular, continuous activity with a profit motive.
- The safe harbor
- A rental enterprise with 250 or more hours of qualifying services per year, separate books, and contemporaneous logs can rely on an IRS safe harbor.
- Hours can be hired out
- Time spent by employees, managers, and contractors counts toward the 250 hours; time spent investigating new purchases does not.
- Grouping enterprises
- Similar residential properties can be grouped into one enterprise so their hours are counted together. Commercial and residential are not mixed.
- Income limits and wage tests
- Above certain income levels the deduction is measured against wages paid and property basis, which can shrink or eliminate it.
The tax benefit
Up to a fifth of qualifying rental profit is deducted before tax is calculated, with no cash outlay required.
Worked example
Four houses, one enterprise
An owner groups four rental houses, logs 310 hours of leasing, maintenance, and repairs across them, and keeps separate books. The $40,000 profit may support an $8,000 QBI deduction.
Watch out for
- Triple-net leased property generally does not qualify.
- The logs must be kept as you go; reconstructed hours are specifically excluded from the safe harbor.
- The deduction is scheduled to change over time — confirm it for the year you are filing.
Terms from this topic
QBISafe harborRental enterpriseTrade or business
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