QBI deduction

[wethepeople]

 If a client wants to take a QBI deduction for profits from a residential rental property does he report the income and expenses on Schedule E or Schedule C?

Does he have to pay self-employment taxes on the profit?

[dascpa]

What clients wants to do is irrelevant - it's what the law says.

It's still Schedule E but client would have to qualify and it's doubtful that a single residential rental property would meet the Safe Harbor Standards of 250 hours.  check the rules on rental properties and the requirements to claim QBI. 

[sjrcpa]

If the rental is trade or business it qualifies for the QBI deduction.

Meeting the safe harbor is not required, unless you want to rely on the safe harbor.

Facts and circumstances determine whether it is a trade or business.

[wethepeople]

 If the rental activity does qualify for the QBI deduction does it get reported on Schedule E or C and is the profit subject to the self-employment tax?

[abctax55]

QBI determination does NOT change the character of the income.

[wethepeople]

Does that mean Schedule E should be used?

If so, is the profit subject to self-employment tax? 

[PATAX]

Dascpa, I agree with you with the statement that it is doubtful that one rental property will qualify you for the qbi... based on my experience this is indeed doubtful, but this is just my opinion...

[PATAX]

Please do not take this the wrong way ....but you should read up on the qbi and become knowledgeable on it as much as possible... Just my opinion

[dascpa]

I have debated this topic with over a hundred CPA's. I personally feel that the typical one residence, or the residence with a management company, or even a handful of residential rentals and even some small commercial rental properties do not qualify.  First off no one tracks hours and if they do it's rare.  Most people don't have a separate bank account, separate formal accounting and more.

But other tax preparers are very aggressive and take every rental property as QBI.  We all know by the time this is ever audited the laws will have changed but I sleep better at night knowing that I was "aggressive without being abusive". That's my philosophy.

[PATAX]

Dascpa, I have also discussed this with fellow CPAs, including a good friend who is a top-notch CPA and EA. I agree with what you have said. One or two or three properties will usually not qualify you for qbi. After the coronavirus epidemic stops and all of the financial aid including the stimulus checks stop then I would bet that the IRS is going to get very strict because the government will have to bring in more Revenue since the Federal debt I believe is approximately 20 trillion ... Just my opinion ...

[wethepeople]

Helpful response.

I would appreciate your view on whether or not the net income from the residential rental property is subject to self-employment taxes.

[abctax55]

QBI determination does NOT change the character of the income.

My answer from six hours ago still stands.

Only YOU, as the *tax pro* can determine whether this 'rental' rises to the level of providing enough in the way of services to be deemed income subject to SE tax.

I'll throw you a bone - research short-term rentals.