Will You Qualify for the New Pass-Through Deduction?

If your rental real estate is being treated as a trade or business, in order to receive the QBI deduction, be sure that Forms 1099 are filed for all required recipients.

The recent Tax Cuts and Jobs Act introduced the new Qualified Business Income (QBI) deduction. This allows certain trades or businesses, subject to limitations, to deduct 20% of business income.

The final regulations offer unclear rules as to determining whether a rental real estate activity qualifies as a trade or business for QBI purposes. The regulations state that one factor in treating a rental activity as a trade or business for QBI purposes is whether the taxpayer complies with the requirements of information reporting. This requires the taxpayer to file Forms 1099 for all required recipients.

Form 1099-MISC would be required to be sent to any non-corporate service provider (lawn service, maintenance, repairs, etc.) that was paid at least $600 in 2019. 2019 Form 1099-MISC returns are due to the recipient AND IRS by January 31, 2020. Penalties apply for each failure to file a timely return and each failure to furnish the recipient’s taxpayer identification number. The penalties that can be levied for unreported or incorrectly reported information returns may exceed the benefit received from the QBI deduction.

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