how do I classify k-1 partnership rental income as non-passive

[TaxGuyBill]

It sometimes depends.  What makes it non-passive?

[Terry53029]

If you are sure it is non-passive you have to check box on information worksheet that your client is a real estate professional, and on K1 line 2 check box Materially Participated. that will make the income non-passive. Most rental income is passive income. Why is your clients not ?

[terrymedo]

Prior year returns CPA preparer classified as Non-Passive and took the QBI deduction.........

I am trying to understand why it is non-passive also..............

Taxpayer is a 50% General partner.............business is a single tenant office building........

Other general partner is closer geographically and more involved in day to day decisions, which are minimal.

I never did figure out how to follow prior years by classifying as non-passive so I classified as passive,,,,,,,,,,,

I appreciate your reaching out to answer my question

[TaxGuyBill]

Based on what you have said, it seems like it should be passive, unless there are circumstances that we don't know about.  Maybe the prior preparer did something incorrectly.  Unless you find out circumstances that make it non-passive, you should treat the rental as passive.

It can still possibly qualify for QBI, even if it is passive.  Although many/most tax preparers will claim QBI for just about any rental, it is my personal opinion that a single rental (with a single tenant) rarely rises to the level of a Trade or Business to qualify for QBI.  But many disagree with me.

[Terry53029]

@TaxGuyBill I generally agree with you on the single rental, but I do offer my clients the option to take safe harbor (Revenue Procedure 2019-38 ), and sign that form each year they want to take the safe harbor

[terrymedo]

I did take the QBI deduction even with the passive classification..........mainly because prior firm took it............it was only about $850............lots of gray area on this topic.

complicating this was another rental partnership where taxpayer is 4% limited partner...........partnership provided all of the 199A info on the K-1 but I didn't take the QBI on this because it doesn't come close to trade or business, the way I understand it.

Thanks for all of your time in reaching out

[TaxGuyBill]

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@terrymedo wrote:

another rental partnership where taxpayer is 4% limited partner...........partnership provided all of the 199A info on the K-1 but I didn't take the QBI on this because it doesn't come close to trade or business, the way I understand it.

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If I remember correctly, the determination for a Trade or Business for QBI purposes is determined at an entity level, not the individual level.  In other words, the preparer of the 1065 determined it was Trade or Business for the Partnership and qualifies for QBI, which means all the Partners qualify for QBI regardless of their participation level.