Quick Answer
The Section 199A qualified business income (QBI) deduction can let eligible owners deduct up to 20 percent of qualified business income from certain pass-through activities, and recent legislation made it permanent. A rental property only counts if the activity rises to the level of a trade or business. The IRS offers a safe harbor in Revenue Procedure 2019-38 that generally requires separate books and records, at least 250 hours of rental services per year, and contemporaneous records of those hours. This article is general education, so confirm how it applies to you with a CPA.
Why Richmond Rental Owners Should Care About QBI
Most small landlords think about rental taxes in three buckets: rent coming in, expenses going out and depreciation. The QBI deduction adds a fourth bucket that is easy to miss. Unlike an expense, it does not come from spending money. It is a deduction calculated on your net business income from a qualifying activity, taken on your individual return. For an owner with a profitable rental or two in Richmond, Henrico or Chesterfield, it can meaningfully reduce taxable income if the rules are met.
The catch is that rental real estate sits in a gray zone. Some rentals are a business for tax purposes and some are passive investments, and the difference determines eligibility. That is why documentation matters as much as the property itself.
What the QBI Deduction Actually Is
Section 199A of the Internal Revenue Code allows eligible non-corporate taxpayers to deduct up to 20 percent of qualified business income from a qualified trade or business operated through a sole proprietorship, partnership, S corporation or certain trusts and estates. For rental owners, that often means income reported on Schedule E from properties held personally or through an LLC that is taxed as a disregarded entity or partnership.
Sources reviewing the One Big Beautiful Bill Act, signed July 4, 2025, report that it made the deduction permanent, removing the sunset that previously applied after 2025. Because tax law can change and because details such as phase-in ranges are adjusted for inflation, always confirm current figures on the IRS QBI deduction page or with your tax professional.
The Threshold Question: Is Your Rental a Trade or Business?
To produce qualified business income, a rental activity must be a trade or business under Internal Revenue Code Section 162. The general test looks for activity carried on with regularity and continuity and with profit as a primary purpose. Owning a single long-term rental and doing little other than cashing rent checks may not qualify. Actively marketing units, screening tenants, handling maintenance, keeping detailed books and managing several properties looks much more like a business.
There is no bright-line test in the code for most landlords, which is why the IRS created a safe harbor.
The Rental Real Estate Safe Harbor (Revenue Procedure 2019-38)
If you meet every requirement of the safe harbor, the IRS will treat your rental real estate enterprise as a trade or business for QBI purposes. In summary, the requirements include:
- Separate books and records. Maintain records that show income and expenses for each rental enterprise.
- 250 hours of rental services. Generally at least 250 hours of rental services must be performed each year. For enterprises that have existed for four or more years, the test generally looks at whether the 250-hour threshold is met in at least three of the five most recent years.
- Contemporaneous records. Keep logs of hours, the services performed, dates and who performed them. Records created long after the fact are risky.
- A statement with your return. The owner must attach a statement to the return confirming the requirements were satisfied.
Triple-net leased properties are excluded from the safe harbor, though they may still qualify under the general trade or business standard. Mixed-use properties and properties used as a residence by the owner also have special treatment.
What counts as rental services?
In general, rental services include advertising to rent or lease the property, negotiating and executing leases, verifying tenant applications, collecting rent, daily operation, maintenance and repair, managing the property, purchasing materials and supervising employees and contractors. Activities such as arranging financing, studying property investments or traveling to and from the property are generally not counted. Rules on what is included are specific, so ask your CPA to review your log format.
Do hours worked by a property manager count?
Under the safe harbor guidance, rental services can be performed by the owner or by employees, agents and independent contractors on the owner’s behalf. That means hiring a property manager does not automatically disqualify you, and hours the manager spends on your properties may count toward the 250. The practical issue is documentation: you need a way to obtain a clear record of hours from your manager. If you work with a management company, ask what reporting they can provide and discuss it with your CPA before year end.
Sample Scenarios
| Owner profile | Facts | QBI considerations |
|---|---|---|
| Owner of one Richmond single-family rental | Lease renews yearly, minimal activity, no separate books | Likely difficult to show a trade or business; safe harbor probably not met |
| Owner of four Chesterfield rentals who self-manages | Handles showings, repairs and rent collection, keeps a time log | May meet the 250-hour safe harbor if records are solid |
| Owner of three Henrico rentals using a property manager | Manager handles day-to-day, owner reviews statements | Hours by the manager may count if documented; ask your CPA how to track |
| Owner leasing a property on a triple-net basis | Tenant pays taxes, insurance and maintenance | Safe harbor unavailable; must satisfy the general trade or business test |
| Owner renting part of their own home | Mixed personal and rental use | Special rules apply; discuss with a professional |
These are illustrations, not conclusions. Individual facts decide the outcome.
Income Limits and the Wage and Property Test
For taxpayers whose taxable income is under the annually adjusted threshold, the deduction is generally 20 percent of qualified business income, subject to an overall limit tied to taxable income. For taxpayers over the threshold, additional limits apply based on W-2 wages paid by the business and the unadjusted basis of qualified property. Specifically, the limit is generally the greater of 50 percent of W-2 wages or 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property.
Because most rental owners pay no W-2 wages, the property basis calculation does much of the work. That is one reason rental owners with higher incomes should have their CPA model it rather than assume the deduction applies in full. Unadjusted basis is generally the original cost of the depreciable property, not the amount remaining after depreciation.
Records That Make or Break the Deduction
If you are pursuing QBI treatment, build habits that make the case for you:
- Keep a time log. Record date, task, property and time. A simple spreadsheet is fine. Reconstructing hours from memory in April will not hold up well.
- Separate your accounting. Use a dedicated bank account and bookkeeping category for each enterprise.
- Save vendor and manager records. Work orders, invoices and manager reports support your hours and expenses.
- Calendar your year-end review. Check hours by November so you know whether you are close to the threshold and can plan accordingly.
- Retain what you file. Our guide to 1099s and year-end reporting for Virginia rental owners covers related paperwork.
How QBI Fits Into the Rest of Your Rental Tax Picture
QBI does not replace depreciation, expense deductions or passive loss rules. It sits on top of them. Qualified business income is generally net of deductible expenses and depreciation for the activity, so the more deductions you take, the lower the base for the QBI calculation. Rental losses may also be limited by passive activity rules, and losses can reduce or carry into future QBI calculations. These interactions are exactly why a coordinated plan beats optimizing any single line. If you do not have a team yet, see our overview of building your rental business team.
When comparing investments, remember that QBI is a tax benefit, not an operating return. It does not belong in your cap rate. If you are building a rental model, our explainer on cap rate versus cash-on-cash return shows which metrics capture operating performance.
Common Mistakes
- Assuming every rental qualifies. It does not. The activity must be a trade or business.
- Counting activities that do not qualify as rental services. Investment research and travel are common over-counts.
- Skipping the statement. The safe harbor requires one.
- Lumping all properties together without thought. The safe harbor has rules about how properties can be grouped, and residential and commercial generally cannot be combined.
- Forgetting the limit for higher-income owners. Above the threshold, wage and property limits apply.
- Relying on blog posts instead of a CPA. This is general education. Your return depends on your facts.
Frequently Asked Questions
Is the QBI deduction still available for rental income?
Reviews of the One Big Beautiful Bill Act report that it made the Section 199A deduction permanent. Eligibility for rental income still depends on whether the rental activity is a trade or business and on your income and the limits described above.
How many hours do I need to qualify under the safe harbor?
Generally 250 or more hours of rental services per year, with a modified test for enterprises held four or more years. You also need separate books and records, contemporaneous documentation and a statement attached to your return.
Can I count time my property manager spends?
Rental services performed by agents and contractors on the owner’s behalf can generally count. You need records that document those hours, so ask your manager what reporting is available.
Does the safe harbor apply to triple-net leases?
No. Triple-net leases are excluded from the safe harbor, though they may still qualify as a trade or business under the general standard.
Does my LLC matter for QBI?
The entity type matters because QBI flows through pass-through entities. A single-member LLC that is disregarded for tax purposes reports on your personal return. Ask your CPA how your structure affects the calculation.
Do I need a CPA for this?
For most owners, yes. The deduction depends on your total taxable income, entity structure, passive loss status and records. A qualified professional can model the result and keep you compliant.
When should I start tracking hours?
At the start of the tax year. Contemporaneous records are the point of the requirement.
Talk to Mission Realty
Good records start with good operations. Mission Realty Property Management provides clear owner reporting, vendor documentation and day-to-day management for Richmond-area rental owners. Learn more on our property management services page, explore our owner resources, or request a free rental analysis.
Mission Realty is not a tax or legal advisor. This article is general information and not tax advice. Consult a qualified CPA or tax attorney about your situation.
