Terry D EA

I'm not sure if this actually applies. I take most of what you posted as amending from MFS to MFJ. My take is separate amendments. Where do you get the figures for the first column of the 1040X? It asks specifically for the amounts on the original return. May be the out here is do one 1040X with copies of the two originals attached with a statement attached showing the calculations to substantiate the amounts in the first column of the 1040X. I'm a bit confused. The returned filed single would seem to benefit from the MJF status where the HOH might stay the same. Let me be that bad guy here, sounds like these folks may have been on the outs with each other and now gotten back together and looking for a benefit. Maybe as you say, they just want to do the right thing. I would want to ask some more questions to see if there is something sleeping under the rug here that could take a chunk of me later. Then again, maybe I am way off here.

Agree with michaelmars, how is the property titled and to whom? Knowing this should determine if it might be a partnership. The other question is was a partnership between the two SMLLC's established? If so, everything goes on the 1065 and passes thru to the SMLLC's in their respective percentages and then onto the Sch C as a disregarded entity. Other than that, it does sound like a joint ownership.

Only if you exceed the income thresholds. Small time folks like me can still take the QBI, possibly. A lengthy read but seems to be the best analysis given to date.

Thanks Gail, I can promise you I', not telling my clients anything except that I am not sure until I calculate everything. I learned this numerous years ago after having to find a way to remove my foot from my mouth. I have several rental property clients that are individuals with one property, two or more properties, and rental partnerships. I am handling them each individually. The partners that I do not preparer their individual returns will receive instructions from me for the QBI. That will be limited to the statement on the K-1. It will be their preparer's responsibility to calculate the QBI on the 1040 correctly.

Judy, I didn't quite catch that part. If they can't use the safe harbor then it would seem to be reasonable they meet the definition of a trade or business according to section 162. I wish there was some definitive answers with this. I am still waiting to hear how one poster said the IRS stated not to rely on section 469 when determining if the RPE rises to a trade or business. I've not seen anything on that. But, section 469 is really clear on what conditions cause rise to a trade of business. The same language is used to determine the 25K loss rule. It appears the more I study and research the more uncertain I am becoming. I'm sure we will be hearing various opinions on this. BTW- Were you or are you looking at joining the webinar from Drake explaining how Drake calculates QBI? The timing is terrible for me. I hope they archive that for later viewing.

I prepare the individual return for one partner. I know the income, investments, cap gains; etc, do not figure into the QBI. I'm confused at your figure for guaranteed payments. The only amounts in my scenario are approximately 279.00 respectively. It looks like you're calling the rental income guaranteed payments. Explain please. I do not know about the other partner and I can only provide the partnership income he is to claim on his 1040. I agree the QBI final figures are calculated after the deductions on the 1040. The class that I took never mentioned that. Give me resource if you can. On item #7 you are correct. I should have noted that this would be the potential deduction before anything else on the 1040. Sorry about that. Here is a blurb from the class notes that were handed out: "What Does This Deduction Do Anyway? It allows a below the line deduction to taxable income (NOT AGI, SE tax, itemized deductions, or AMTI) for qualified business income (QBI). QBI is defined as the net amount of domestic income, gains, deductions and losses from a qualified trade or business more than long-term capital gains (they get special treatment already) on the individual taxpayer's Form 1040. This is usually going to be the number AFTER the itemized/standard deduction less the long-term capital gains. The deduction is them calculated as the lesser of 20% of QBI or 20% of the taxable income. If the taxable income on the 1040 is below $157,000 or $315,000 for MFJ then the calculation is done at this point. If the taxable income is between the thresholds, you must calculate the limitation to the QBI deduction." This partnership has no employees and is all rental real estate. Therefore there are no W-2 wages to play into the calculations. Because the one partner that I know of, income will be below the threshold, then the depreciation test is not used either. My client would be looking at either the 20% of QBI or 20% of taxable income.

Working with a partnership that holds 11 properties that are residential real estate. I would like comments on my thoughts here to be I am hitting this right on the mark. The partnership has two partners so which qualifies them for the QBID as a pass thru entity. 1. I feel they should aggregate all properties into one activity per section 199A. Comments? 2. The total rental net income equals $41,187.00. 3. Other partnership income equals -$1678.00 ( Parts of this loss is small guaranteed partner payments that don't qualify for QBI correct?) 4. Income for QBI purposes equals $39.509 = $41187.00 - $1678.00 (figures are rounded) 5. Each partner is MFJ with income under the threshold so limitations do not come into play. 6. No W-2 wages and no depreciation test required. 7. Each partner QBID equal $3,950.90= $19,754.50 x 20% ($19754.50 = $39,509.50/2) 8. Create the statement of either trade or business under sec 162 or safe harbor method 9. Yes, I have to figure the guaranteed payments out of the QBI calculations. Comments please.

Gail, I agree. The paragraph below is taken from the revenue procedure and is fairly straight forward. So, if a rental property owner hires an HVAC contractor to replace the Heating/Cooling unit, those hours should be documented and apply toward the 250. Same with a roof replacement or lawn maintenance. .04 Rental services. Rental services for purpose of this revenue procedure include: (i) advertising to rent or lease the real estate; (ii) negotiating and executing leases; (iii) verifying information contained in prospective tenant applications; (iv) collection of rent; (v) daily operation, maintenance, and repair of the property; (vi) management of the real estate; (vii) purchase of materials; and (viii) supervision of employees and independent contractors. Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners. The term rental services does not include financial or investment management activities, such as arranging financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate.

Also, in my post above, the 250 hour requirement would be met by both partners. So, I will let the partners make the decision as to whether they want to take on the task of maintaining activity logs for TY 2019 and beyond. For TY 2018, the section 162 requirements will be used as I am sure neither one of these folks will have the activity logs.

>>>>>>“IRS declined to provide any further guidance on when a rental qualifies nor any bright line test - trade or business is still the standard. It specially says it will not reference 469 for 199A purposes.<<<<<<< I personally have not found this statement yet. Doesn't mean it's not fact. Please provide a reference. It appears it is much easier to determine if the RPE rises to a trade or business under section 162 than having a client provide the log hours. I have two real estate rental partnerships, that have two 50/50 partners with a total of 24 properties that invest, maintain and control all aspects of the activity. There is a profit motive, and continuity which meets the requirements of a trade or business under section 162. While in this scenario the calculations for QBI are going to be involved, I am of the opinion they still qualify for the QBID. Any comments are welcome.

Separate books shouldn't be that difficult. I have a few partnerships and individuals that invest in rental real estate. Each of them keeps records for each property that includes the income received, itemized expenses with receipts, depreciation schedules, etc. I agree with keeping a log of the hours of activities will cause some problems. I would propose if the property owners want the deduction they'll keep the records. I would like to see the statement that folks create for the clients to sign.

All I am sure of is I started studying the 199A last May and the more I study the more confused I get. Who would have thought a 20% deduction would turn into what it has. Geez!

Try Drake Accounting. I am using it with direct deposit without any major concerns. Yes, this is new, and yes there are small issues. But...Drake is working them out and responds just as fast as they do with the tax programs. I am two years into it and they are welcoming any feedback to make the program more user friendly. Just to add, took over one client from ADP, the company employees have noticed nothing different. For NC, Drake makes the creation of the required .txt files easy. Just my humble opinion.

I'll go back thru the materials to find the reference. I put one of sections from 469 in my post above. It is a shame we have to go to all of these lengths to support our client's position. I guess it would make entirely too much sense to have a definitive answer that allows us to draw a clear conclusion. In the mean time, I am gathering every reference I can to get ready for any challenge from the IRS. I have several rental property clients ranging from individuals to partnerships. Most materially participate, but one or two may not meet the lowest level of participation. If all of us are concerned about this new reg, I surely wouldn't want to see someone attempt to do this on their own. All those ads "prepare your taxes for free! Free E-file; etc.

Agree if the property takes care of everything and the owner does not actively participate at the lowest possible level than no QBI. Also, rentals that are losses do not qualify for QBI but those losses factor in going forward and will deduct from any profits in the future years plus as I see things, the losses may be reduced as well. We have to consider every factor and treat each client individually. It appears here that one size will not fit all.

The CPE class I just finished made reference to 469i. This part of the regs applies to the 8582 Passive Activity Losses. It was stated the same conditions to be able to take the loss applies to determining whether rental activities gives rise to a trade or business. The main determining factor is material participation. This includes participation at the lowest level as well. However, if an individual or other entity exclusively utilizes a property management company and performs no active functions what so ever, then it does not give rise to a trade or business and does not qualify for QBID. The same would be true with passive losses. While I agree with the allowable deductions per 162 constitutes rental as a Trade or Business, I think the paragraph below helps further substantiate the position. Now, after you cross this hurdle, get ready for the asset calculations and others to determine the QBID. (C) Real property trade or business For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

I just created a Enc3 application file and each file format was accepted successfully. Here is what I think the catch is. We should download (which I did) the .txt file format template for the Enc3 W-2 file. If you use the template correctly, there won't be any problems. However, I suggest running the test within the website first. I am using Drake Accounting and figured out that Drake will save the NC-3 form in the proper format with the proper form extension. With that said, the problem may very well be with software companies for processing payroll aren't allowing the end user to save the file properly. I looked everywhere on NC's site for a template for the NC-3 or how to save the form from there to no avail. I hope this helps a bit. I guess if all else fails, submit the packet manually or mail the forms in. As John sated above the penalty for not filing electronically is waived.

cbslee, I agree and am now changing my position as well. Can't Wait to see what you have complied.

Wow, that case is as you said from 1943. I find it odd that this is the only challenge regarding rental property considered as a trade or business. Sorry, but I wasn't going to pay the fee to see if the law is still relevant today. FYI- a poster on the Drake Forum supplied an article written by David M. Fogel, EA, CPA, USTCP. In this article it is his opinion that rental property that is simply not held for investment purposes only, and I am assuming he is referring to a passive activity, is considered a trade or business for the purposes of QBI. I know opinions are not case law, revenue rulings or any other official document to rely on. With that said, I think we all should secure as many references, case laws; etc., to be armed for the IRS to challenge a QBI deduction taken for a single rental property owner. Just my 2cents worth, I bookmarked the link above. If you want to print the case document, it requires a $65.00 subscription fee.

I have two clients who are partners in an LLC that operates solely for rental real estate. Under the the following paragraph their properties are held for investment or speculation and do not engage in any other services that are beyond the scope of the partnership therefore making their income from the partnership excluded from SE tax. With that said, my client's position is the same as Danrvan's I don't see how they qualify for the QBI either. Also, I have several client's who have rental properties as individuals that are held for investments purposes and appear to not meet the conditions of a Trade or Business according to the pub in the OP. It certainly would be nice to have some clear definitive answers in these areas. I am collecting all of the data I can to substantiate my position when I tell them their rental income doesn't qualify for QBI. I guess the simpler solution is to think that if the activity doesn't generate income subject to SE tax then no section 199A. Exclusion for Rental Real Estate Income. Net rental income from leased real estate is not included in earnings from SE and thus, is not subject to the SE tax if the real estate is held for investment or speculation. Under two common circumstances, the real estate will not be deemed held for investment or speculation. The first is if the individual is a real estate dealer and holds real property for sale in the normal course of business. Additionally, if the partnership/lessor renders services beyond those that are customarily provided in connection with such leased property or if any services, customary or not, constitute a material portion of the rental payments, the income will be classified as "earned" and subject to SE tax.

Agree with cbslee, which activity is the LLC? Is the LLC a single member and taxed as a disregarded entity?

It appears by this quick alert the IRS will begin accepting business returns beginning January 8, 2019. ubject: 2019 Filing Season for Modernized e-File (MeF) Business Returns The IRS will begin accepting all business tax returns at 9 a.m. Eastern on January 8, 2019. Please continue to monitor the MeF Status page and IRS.gov for updates. Back to Top Thank you for subscribing to QuickAlerts for Tax Professionals, an IRS e-mail service.

Yep its ready to go. Already downloaded and installed. BTW- 2019 Accounting program is ready for download as well.

Never had Drake do this either. Again, maybe we can be of some help if you post what your experiencing.

Thanks again John, I'll be sure to follow the proper protocol.