The IRS has clarified a rule regarding the 20% business income deduction as regards rental income and exchanges.
"Many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction – also called Section 199A – for tax years beginning after December 31, 2017. The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income." - IRS website
Since the rule was announced as part of the Tax Cuts and Jobs Act in 2017, there has been some confusion about real estate income.
Rental income and the 20% deduction
According to a press release from the National Association of Realtors, "If you generate rental property income, that income can also qualify for the new deduction, as long as you can show that your rental operation is part of a trade or business."
There are further guidelines that need to be obeyed, for example, how many hours a year you invest in your rental properties, etc. Nonetheless, rental income does qualify.
1031 Like-kind Exchanges
Prior to the recent statement from the IRS, if your income was above a certain threshold, your deduction might be reduced because of a 1031 exchange. The IRS has since clarified that it will no longer make that deduction.
The 20% QBI is now available to more real estate investors.
This makes real estate investment even more profitable and appealing.
King Realty Group does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.