Does your farm rental qualify for the Qualified Business Income Deduction?
In 2018, the Tax Cuts and Jobs Act was passed allowing a 20% deduction on 'qualified business income'. There are no clear rules for determining whether renting out farmland is a trade or business. However, IRS guidelines state:
Within the scope of a section 162 (the section providing for deduction of ordinary business expenses) determination regarding a rental activity, key factual elements that may be relevant include, but are not limited to, the type of property, the number of properties rented, the day-to-day involvement of the owner or its agent, and the type of rental. Therefore, due to the large number of factual combinations that exist in determining whether a rental activity rises to the level of a section 162 trade or business, bright-line (unambiguous) definitions are impractical and would be imprecise.
IRS guidelines also indicate the determination is based on if the activity is engaged in with the intent of making a profit on a continuous and regular basis.