Can I claim QBI deduction on my rental property that's now profitable after years of maximizing losses with active participation?

This is really helpful info, thanks! I have a similar situation but I'm a bit confused about what qualifies as "trade or business" for rentals. I have one rental unit in a duplex (I live in the other half). Do I need to have multiple properties to qualify for QBI? And do I need to hit a certain number of hours working on it to be considered a business rather than an investment?

The trade or business determination isn't based on a specific number of properties or exact hour requirements. Generally, if you're regularly and continuously involved in rental activities with the primary intent of making a profit, your rental likely qualifies as a trade or business. For your duplex situation, that single rental unit can absolutely qualify. The IRS provided a safe harbor guideline (Revenue Procedure 2019-38) that says if you perform at least 250 hours of rental services per year and maintain contemporaneous records, you'll qualify - but even without meeting that specific threshold, many rental activities still qualify based on facts and circumstances.

How exactly does that work? Do you have to share all your personal financial info with this site? I'm always skeptical about uploading tax documents online.

Did it tell you anything about how to document the rental as a "trade or business" for QBI purposes? I'm worried the IRS might challenge my QBI claim since I only have one property.

The site uses encryption for document uploads, and you can actually black out sensitive personal info before uploading if you're concerned. It's analyzing the tax situations and forms, not your identity. I was hesitant at first too but their privacy policy was reassuring. For documenting trade or business status, it actually provided me with a checklist of items to maintain for substantiating my rental as a business. This included things like keeping logs of time spent, maintaining separate bank accounts, having formal leases, and treating the activity consistently as a business. It specifically mentioned that even one property can qualify if you treat it as a business rather than a passive investment.

Wait, this actually works? I thought the IRS was basically unreachable by phone these days. How much does it cost to use?

This sounds like a scam. How exactly is some random service going to get priority access to the IRS when millions of people can't get through? Seems fishy.

It absolutely works! They use an automated system that basically stays on hold with the IRS for you, and when an agent picks up, it calls you and connects you. You don't have to sit on hold yourself. I had the exact same concerns about it being a scam before trying it. It's not about "priority access" - they're just using tech to manage the hold process. You still go through the normal IRS queue, but their system does the waiting instead of you. I was super skeptical but was desperate after multiple failed attempts. When I got the call connecting me to an actual IRS agent, I was honestly shocked it worked so well.

Thanks for mentioning this! I've been tracking my hours but wasn't sure how detailed the records needed to be. Do you know if there's a specific format the IRS wants for documenting those 250 hours? I've been using a simple spreadsheet but wonder if that's sufficient.

A spreadsheet works great as long as you're recording the information contemporaneously (meaning you're logging activities as they happen or very soon after, not reconstructing everything months later). Make sure your spreadsheet includes dates, descriptions of the specific services performed, and hours spent. The IRS wants to see that the records were created at or near the time of the activity. Some tax pros recommend taking photos of maintenance/repairs and keeping a digital or physical folder with all rental-related receipts to further substantiate your involvement.

Good point about triple net leases! The IRS has been pretty clear about excluding those from the safe harbor. But even without the safe harbor, some tax court cases suggest triple net leases might still qualify for QBI based on facts and circumstances if there's enough other business activity involved.

That's interesting - I didn't know about the tax court cases. My CPA was very black and white about it not qualifying. Do you happen to know which cases addressed this? I'd love to look them up since my lease has some triple net features but I'm still quite involved in other aspects of property management.

@Luca Ferrari could you share which tax court cases you re'referring to? I m'in a similar situation with a lease that has some triple net features but I m'still actively managing the property in other ways. My understanding was that any triple net elements would disqualify the entire rental from QBI, but if there are cases suggesting otherwise based on overall activity level, that could be really helpful to know about.

This is really excellent advice about tracking all the different types of rental activities! I was definitely under-counting my hours by only focusing on the physical maintenance stuff. The time spent screening tenants, responding to late-night "emergency" calls that turn out to be non-emergencies, and researching everything from insurance policies to local rental regulations really does add up. Your point about property management software is spot on too. I've been using a simple app to track rent payments and maintenance requests, but I never thought about using the time-stamped communications in there as documentation for my contemporaneous records. That could be really helpful if the IRS ever questions my hour calculations. Do you know if time spent learning about landlord-tenant laws or attending local real estate investment meetups would count toward the 250-hour safe harbor requirement? I spend quite a bit of time educating myself to be a better property manager, but I'm not sure if that qualifies as "rental services" under the regulations.