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'.
To be considered a Section 162 trade or business, the taxpayer must be involved in the activity “with continuity and regularity“ and the taxpayer’s primary purpose for engaging in the activity must be for income or profit. Determining if the activity rises to the level of a Section 162 trade or business will be based on facts and circumstances leading to a conclusion. In other words, you will need to determine if your rental qualifies as a Section 162 trade or business yourself.
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.