What the QBI deduction is
The Section 199A deduction allows owners of pass-through businesses (sole proprietorships, partnerships, S corporations) to deduct up to 20% of qualified business income (QBI) from their taxable income, subject to income limits. For 2025, the deduction begins phasing out for single filers above $197,300 and married filers above $394,600, with more complex limitations applying above those thresholds (the W-2 wages and qualified property limits).
The key question for landlords: does my rental activity rise to the level of a trade or business? If not, rental income is investment income and doesn't qualify for the deduction.
The safe harbor for rentals
IRS Revenue Procedure 2019-38 provides a safe harbor: a rental real estate enterprise (a single property or group of properties treated as one enterprise) qualifies for the QBI deduction if: (1) you maintain separate books and records for the enterprise; (2) you perform at least 250 hours of rental services per year (or in at least 3 of the prior 5 years for established enterprises); and (3) you keep contemporaneous records of time spent, services performed, the date of each service, and who performed it. The 250-hour count includes owner and employee/agent time.
When the safe harbor is hard to meet
250 hours per year on a single rental property is a high bar — that's 5 hours per week on average. Investors with a few properties managed by a third-party manager often fall short. The alternative is establishing that the rental is a trade or business under the facts-and-circumstances standard of Section 162, which requires regular and continuous activity with a profit motive. Triple-net leases, where the tenant handles most responsibilities, typically do not qualify.
Frequently asked questions
Can I claim the 20% QBI deduction on rental income?
Possibly. You must either meet the 250-hour safe harbor, qualify under the general trade-or-business standard, or be a real estate professional. Passive, hands-off rentals typically do not qualify.
Does real estate professional status help with the QBI deduction?
Yes. If you qualify as a real estate professional and materially participate in your rentals, the activity is more likely to meet the trade-or-business standard for QBI purposes, though REPS status alone does not guarantee it.
Is the QBI deduction going away?
The Section 199A deduction was part of the Tax Cuts and Jobs Act of 2017 and was scheduled to expire after 2025. Confirm current law before planning around it.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.