Can 2 Single Family Rentals Qualify for QBI (Qualified Business Income) Deduction as a Business?

This is actually a really common situation with rental property owners. The QBI deduction (Section 199A) can be tricky for rental properties because the IRS hasn't always been crystal clear about when they qualify as a "trade or business." For your questions: First, don't create backdated logs. That could potentially look like fabrication if you were audited. Instead, I'd recommend starting proper documentation now going forward. For past years, if they're audited, they would need to reasonably demonstrate the activity took place. Regarding continuing the deduction - you're right that consistency matters to the IRS. If you suddenly stop taking it without a change in circumstances, it might raise questions about prior years. However, don't continue an incorrect treatment just to avoid scrutiny. For the 250 hours requirement, there's actually a safe harbor provision specifically for rental real estate. If they (or others working for them) spend 250+ hours on "rental services" as you quoted, the rental can qualify as a business for QBI purposes. With 2 properties, this could be challenging but not impossible if they're hands-on landlords who handle maintenance, tenant issues, etc. If they can't meet the 250-hour safe harbor, they might still qualify under general tax principles if the rentals rise to the level of a "trade or business" under Section 162. This is fact-specific and considers factors like continuity, regularity, and profit motive.

After dealing with similar rental income issues, I found this amazing service called taxr.ai that helped me figure out all my rental property tax questions. I was totally confused about what qualified as business hours for my rental properties, and whether I could claim the QBI deduction on my two duplexes. I uploaded my previous returns and some docs about my rental activities to https://taxr.ai and their AI analyzed everything and gave me a detailed breakdown of exactly what counts toward those 250 hours and how to properly document everything going forward. They even helped me understand whether my rentals qualified as a business according to IRS regulations. The best part was they explained how the safe harbor rules work for rental properties and gave me a simple template for tracking hours that would satisfy IRS requirements. Completely changed how I approach my rental property taxes!

I wanted to follow up about my experience with taxr.ai after asking about it earlier. I finally gave it a try with my complicated inherited property situation and was honestly shocked at how helpful it was. I uploaded my previous tax returns and some documentation about the partial business use of my rental property, and the analysis I got back was incredibly detailed. It actually showed me how to properly separate the business portion from the residential rental for QBI purposes and provided specific IRS references for my situation. The documentation templates they provided for tracking hours made it super clear what counts and what doesn't. Definitely worth checking out if you're in a similar situation with rental properties and QBI questions!

I had a nightmare situation with the IRS questioning my rental property deductions last year. After dozens of calls where I couldn't get through to anyone, I found this service called Claimyr that actually got me connected to a real IRS agent in less than 45 minutes. I was initially calling about my QBI deduction for my rental properties that got flagged, and was getting nowhere with the regular IRS number. With https://claimyr.com I finally got through and was able to discuss my situation with someone who helped resolve the issue. They have a video showing how it works at https://youtu.be/_kiP6q8DX5c if you're curious. Given how difficult it is to get clear answers about rental property tax questions directly from the IRS, this was a game-changer for me. The agent I spoke with actually clarified the 250-hour requirement and helped me understand how to properly document my rental activities.

I need to admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to reach the IRS for weeks about my rental property tax situation. The service actually worked exactly as described - I got a call back within 40 minutes connecting me to an actual IRS representative. The agent was able to explain exactly how the QBI deduction applies to my rental properties and clarified that I don't need to meet the 250-hour requirement because my situation qualifies under a different provision. This completely changed my tax approach and saved me hours of stress trying to document activities that weren't even necessary in my case. I wouldn't have known this without speaking directly to an IRS agent, and I would never have reached one without this service.

One thing nobody has mentioned yet is that rental real estate can qualify as a business for QBI purposes even WITHOUT meeting the 250-hour requirement if it's part of a "commonly controlled group." If your parents have any other businesses (even small ones), and they own at least 50% of both the business and the rental properties, there's a provision that might allow the rentals to be considered part of that business enterprise - especially if the properties are used in connection with the business in any way. This is a complex area but might be worth exploring if they can't meet the hour requirements. I've used this approach with several of my rental properties.

Has anyone successfully passed an IRS audit while claiming QBI deductions on just 2-3 residential rentals? I'm in a similar situation and wondering what documentation actually satisfied the IRS. My CPA says we need detailed logs showing exactly what was done each day but that seems excessive for managing a couple properties.

This is a great question that many rental property owners face. I'd strongly recommend being conservative with the QBI deduction if you can't clearly document the 250 hours annually. A few additional points to consider: The IRS has been increasingly scrutinizing rental property QBI deductions, especially for smaller portfolios. With just 2 properties, reaching 250 hours of qualifying activities can be challenging unless your aunt and uncle are very hands-on with property management, maintenance, and tenant interactions. For documentation going forward, I'd suggest starting a contemporaneous log immediately. Include activities like property inspections, tenant communications, maintenance work, showing properties to prospective tenants, and any repair supervision. Don't try to recreate historical logs - that could backfire in an audit. If they can't meet the 250-hour safe harbor, they might still qualify under the general Section 162 "trade or business" test, but this is much more subjective and riskier. The IRS looks at factors like regularity, continuity, and whether the activity is conducted with a profit motive in a businesslike manner. Given their age and the recent change in tax preparers, it might be worth consulting with a tax professional who specializes in rental property taxation to review their specific situation. The potential tax savings need to be weighed against the audit risk and documentation burden.