QBI SELF RENTAL

Technical topics regarding tax preparation.
#1
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College Station, TX
S Corp owns building that C Corp leases from them. The C Corp is a retail store. The S Corp has two members at 50% each. The C Corp is wholly owned by one of the S Corp members. My understanding is that rental is treated as a trade or business if the businesses are under common control. My question is since only one of the S Corp members is a common owner of the businesses, would he be eligible for QBI on the S Corp income, but the other S Corp member would not? Thank you.
 

#2
dave829  
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Are you asking whether this situation is the “self rental” described in Reg. 1.199A-1(b)(14)?
In addition, rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business conducted by the individual or an RPE which is commonly controlled under §1.199A-4(b)(1)(i) (regardless of whether the rental activity and the trade or business are otherwise eligible to be aggregated under §1.199A-4(b)(1)).

Note that this section describes property that is rented to a business conducted by an individual or RPE. In your situation, the property is being rented to a C corporation, which is not an RPE.

So, it's not the "self rental" described in the reg. However, despite that, it may still qualify as a section 162 business.
 

#3
Anderly  
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For 2018 there is the option to use the proposed Regs. There is a good article about this at https://blogs.claconnect.com/agribusine ... h-is-best/
 

#4
dave829  
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Anderly makes a good point. Prop. Reg. 1.199A-1(b)(13) doesn’t have the RPE restriction. And Prop. Reg. 1.199A-4(b)(1)(i) defines “commonly controlled” as follows:
(i) The same person or group of persons, directly or indirectly, owns 50 percent or more of each trade or business to be aggregated, meaning in the case of such trades or businesses owned by an S corporation, 50 percent or more of the issued and outstanding shares of the corporation, or, in the case of such trades or businesses owned by a partnership, 50 percent or more of the capital or profits in the partnership;

Since the individual who owns 100% of the C corp also owns 50% of the S corp, it fits this definition, so for 2018, you’re okay if you rely on the proposed regs.
 


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