Material Participation for rental QBI is different than for rental loss limitation. Please add a check box

[hedgeslaw]

A "Material Participation" check box for real estate profession loss already exists on 1040, Sch E for example, but an ERROR MESSAGE appears if the check box for being a "Real Estate Professional" is not marked. However, the Material Participation for getting the QBI deduction does not require taxpayer to be a real estate professional. But many landlords qualify for the QBI deduction that are not real estate professionals. This is because the definition of Material Participation for both purposes (loss limitation and QBI deduction) is the same for both, and the 2 most common and easiest qualifications to meet are (1) 100 hours of participation by taxpayer and spouse (2) no one else participates more that taxpayer and spouse. But the loss limitation rules are relaxed if the taxpayer meets the additional qualifications for becoming a real estate professional.  This is not to be confused with neither the 250hr Safe Harbor Elections under Rev Proc 2019-38 nor Notice 2019-07, nor the Sec 162 Real Estate Business (Holiday Inn), nor the special Bed and Breakfast-7day or Less Stay provisions. Please add a check box in the QBI section of rental activities for "material participation for QBI."  Marking this proposed check box would trigger the QBI calculations. This proposed check box should be on the Individual module, form 1040, Sch E,  as well as Trust and Estates module, the Partnership module and Corporate modules.

[sjrcpa]

The standard for QBI is trade or business; not material participation. Owner doesn't have to participate at all.

[hedgeslaw]

I agree with both statements ... QBI is for trades or business and the owner does not need to have any participation at all. However, it is my understanding the certain rental operations are considered non-passive, due to material participation, and they rise to the level of a trade or business for QBI purposes. Some examples are B&Bs and AirBnBs.

[sjrcpa · Accepted solution]

Passive or nonpassive is also irrelevant for QBI.

Doesn't ProSeries have a box to check saying "this rental qualifies for QBI deduction"?

[hedgeslaw]

I totally agree with your statements. Participation is NOT required for QBI.

It is my understanding that to be eligible for QBI deduction, the rental activity must either (1) rise to the level of a trade or business (rental is operated continuously, regularly with a profit motive and substantial activity such as making repairs, negotiating lease terms, collecting rent etc. that under the facts and circumstances it rises to the level of a trade or business) or (2) be a Sec 162 trade or business or (3) met the requirements of one of the 2 statutory Safe Harbors.

ProSeries has a series of check boxes in the QBI section of rental input sheets to trigger the QBI calculation. There is check box for "Is this activity a qualified trade or business?" That language is appropriate and will rigger the QBI calculation. Then there are 2 more check boxes for the 2 statutory Safe Harbor elections.

I don't see how to mark your answer SOLVED

I now realize I was working on an older tax return that asked a different and misleading question when I wrote this suggestion.

Thanks for helping me clear this up for myself. I was thinking that mere material participation was enough to qualify the renal operations.