Rental Real Estate as Qualified Business Income

If you own or manage a rental real estate business, you could benefit from a substantial tax advantage under Section 199A—the Qualified Business Income Deduction (QBID). With this deduction now made permanent, there’s an ongoing opportunity to optimize your rental business’s tax position for the long term.

What Is the Qualified Business Income Deduction (QBID)?

Section 199A allows non-corporate taxpayers—including sole proprietors, partnerships, S corporations, trusts, and estates—to deduct up to 20% of qualified business income (QBI). This includes income from qualified trades or businesses, as well as certain dividends from REITs and publicly traded partnerships.

The deduction is calculated as the lesser of:

• • 20% of your combined qualified business income (including REIT dividends and PTP income), or 
• • 20% of your taxable income minus net capital gains.
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QBID Permanently Extended by Congress

Thanks to the One Big Beautiful Bill (OBBB), passed by Congress in July 2025, the QBID will remain available indefinitely. Real estate investors and small business owners now have the certainty and flexibility to incorporate this deduction into both current and future tax strategies.

How Rental Real Estate Can Qualify for QBID

Rental real estate may be treated as a trade or business under Section 199A in two primary scenarios:

1. Rentals to a Commonly Owned Business

If you lease property to a business in which you or a group you’re part of own at least 50%, your rental activity may automatically qualify—even if the businesses are not aggregated for tax purposes.

2. Safe Harbor for Rental Real Estate Enterprises

The IRS offers a safe harbor allowing rental real estate to be classified as a trade or business if certain conditions are met:

• Maintain separate books and records for each rental real estate enterprise.

• Perform a minimum of 250 hours of rental services each year.

• Keep contemporaneous records (for tax years after 2019) that document the services performed, service dates, and who performed them.

Why This Matters Going Forward

While the deduction is now permanent, proactive planning remains essential to maximize potential savings. Ensuring your rental operations meet the necessary requirements can translate to significant tax benefits year after year.

Let’s Talk Strategy

At All Tax Accounting, we specialize in helping real estate investors and business owners navigate tax complexities. We can:

• Evaluate whether your rental activities meet Section 199A standards.

• Help you structure your business for safe harbor qualification.

• Optimize your deductions under the permanent QBID provisions.

📞 Call us at 443-406-6441 or 📧 email info@alltaxaccounting.com to schedule your consultation.