QBI for Rental Property: Eligibility, Rules & Examples 2026

Figuring out which income counts as qualified business income (QBI) can be confusing, especially when you’re managing a diverse portfolio.

This guide breaks down the rules, eligibility criteria, and examples for multi-unit landlords so you can see exactly how it works.

Key takeaways

• Only rental income that qualifies as a trade or business counts — most multi-unit landlords meet this through the Safe Harbor method.
• Safe Harbor requires 250 hours of rental services per year and proper recordkeeping, which can include property managers’ hours.
• Strategically grouping properties simplifies hour tracking, QBI calculation, and UBIA limits across your portfolio.
• QBI flows from net rental income on Schedule E, adjusted for losses, taxable income limits, and W-2/UBIA restrictions.
• Consistent recordkeeping and planning matter — tracking hours, reviewing grouping, and using tools like Baselane make QBI easier to manage and defend.

What is Qualified Business Income?

Qualified Business Income (QBI) is the net income from a U.S. trade or business that may be eligible for a 20% tax deduction under Section 199A.

For rental property owners, QBI includes your net rental income after ordinary and necessary expenses—such as repairs, management fees, insurance, and depreciation—as long as the rental activity rises to the level of a trade or business (more on this later).

This distinction matters because if your rental income qualifies as QBI, you may be able to deduct up to 20% of that income, reducing your effective tax rate without changing how you operate your properties.

The three ways rental income can qualify as a trade or business

The IRS recognizes three QBI rules for rental property to meet this standard. Understanding which one applies to your portfolio is critical because it determines how you document compliance and how defensible your deduction is.

The Safe Harbor method (most common for landlords)

The safe harbor is the most straightforward and widely used way for rental properties to qualify for QBI. Under this method, your rental activity qualifies if you:

• Perform at least 250 hours of rental services per year (can be performed by you or your property owner, employees, independent contractors, and agents acting on your behalf)
• Maintain contemporaneous records: Records created at the time services are performed (or shortly after) and can’t be reconstructed at tax time based on memory
• Treat the rental as a separate enterprise (or grouped enterprise)
• Attach a safe harbor statement to your tax return

Rental services include activities like tenant communication, repairs, rent collection, maintenance coordination, and property management oversight. This approach works especially well for multi-unit landlords, as hours naturally accumulate across properties.

Use: Time tracking sheet and rental property analysis spreadsheet

Facts-and-circumstances trade or business test

If you don’t meet the safe harbor requirements, your rental may still qualify based on the overall facts and circumstances. Here, the IRS looks at whether your activity is:

• Regular and continuous
• Conducted with a profit motive
• Operated in a businesslike manner

This test is more subjective and harder to defend, but it can work for landlords who are heavily involved yet fall short of safe harbor technicalities.

Self-rental to a commonly controlled operating business

If you rent property to a business you commonly control (50% or more ownership), the IRS generally treats that rental as a trade or business for QBI purposes. This is common when landlords own both the real estate and the operating company (e.g., medical practice, retail business, or professional services firm).

Which qualification path fits your portfolio?

Most landlords should default to the safe harbor unless there’s a clear reason not to. A simple decision framework

QBI eligibility requirements beyond ‘trade or business.’

Beyond the "trade or business" designation, there are specific financial and structural hurdles to clear.

Income thresholds and phase-outs (2026 updates)

The One Big Beautiful Bill Act (OBBB) has adjusted these thresholds for 2026.

• Single filers: The phase-in range from $50,000 - $75,000.
• Married filing jointly: The phase-in range is between $100,000 - $150,000.

Below the threshold, the calculation is simple, and you get a full 20% deduction. Above it, you need to rely on W-2 wages or qualified property (UBIA) to support the deduction.

Qualified property (UBIA)

If your income exceeds the thresholds, you can opt for the QBI deduction Unadjusted Basis Immediately After Acquisition (UBIA). It allows you to claim a deduction based on 2.5% of the purchase price of the property (excluding land), plus 25% of W-2 wages paid.

How QBI works for a multi-unit portfolio

Multi-unit landlords have a structural advantage in QBI qualification that single-property owners don't enjoy. Here's the fundamental dynamic:

• You can group properties into one "Rental Real Estate Enterprise" (RREE)
• You need 250 hours total across the entire portfolio, not per property​
• The necessary rental services naturally add up when you have many units.
• ​It's clearer you're running a business when you have more properties.

How does a rental real estate enterprise work​?

When you own multiple rental properties, you can put multiple units/properties in one enterprise. For example, if you own four vacation rentals and 3 duplexes, you can create two enterprises and group similar rentals under each.

By forming an enterprise, getting 250 hours becomes easy as you need 500 hours across both enterprises, not individual properties.

If you treat each separately, 7 separate enterprises × 250 hours each = 1,500 hours required yearly, which can be treacherous to track and achieve.

Note: Once you elect a grouping treatment, you must continue it consistently in future years unless there's a "significant change in facts and circumstances." You can't strategically "un-group" properties just because it becomes inconvenient.

How hours accumulate across multiple properties​

Here’s an example of how you can achieve 250 hours to meet the Safe Harbor requirement for QBI.

Example: You own a 6-unit portfolio and work with a property manager. As both your and the manager’s services are considered for safe harbor, here’s what that might look like:

Understanding your tax obligations and rental strategy go hand in hand — review the latest vacation rental income tax rules and weigh the pros and cons of short-term vs. long-term rentals as you evaluate your portfolio mix.

How to calculate QBI for a rental property​

Once your rental activity qualifies, your QBI deduction flows directly from your Schedule E numbers. Here’s a step-by-step walkthrough.

Step 1: Calculate QBI per RREE

Step 2: Apply the 20% tentative deduction: 130,000×20% = 26,000 tentative QBI deduction

Step 3: Apply the overall taxable income limitation

• Taxable income: $160,000
• Minus net capital gains: $10,000
• Adjusted taxable income: $150,000
• 20% limitation: $150,000 × 20% = $30,000

Deduction so far: Lesser of tentative deduction ($26,000) vs. 20% taxable income limit ($30,000) → $26,000

Step 4: Check income thresholds

• Taxable income $160K → above threshold
• W-2 wage or UBIA limits apply

Portfolio facts:

• W-2 wages paid: $0 (property manager is 1099)
• UBIA (original cost basis): $1,650,000
• UBIA limit: $1,650,000 × 2.5% = $41,250

Final QBI deduction: the lesser of the tentative deduction ($26,000) vs. taxable income cap ($30,000) vs. UBIA limit: ($41,250).

→ QBI deduction = $26,000

QBI with rental losses (PAL rules)

A net loss from one or multiple units/properties offsets profits from other units/properties within the same RREE before calculating the QBI deduction. This netting happens at the RREE level, creating a single QBI number for the entire enterprise

If the entire RREE shows a net loss, then there’s no current deduction, but the QBI loss carries forward and offsets future RREE profits dollar-for-dollar.

Furthermore, Passive Activity Loss (PAL) rules may suspend your ability to take the loss against other income unless you are an active participant earning under $100,000.

Actionable strategies to maximize your QBI benefits

To ensure you can take this deduction, you must treat your rental like a business.

Track rental activity consistently

Use a monthly time-tracking sheet or time-tracking apps to record the hours spent on rental services at once. Accurate documentation from the get-go helps you avoid headaches if the IRS flags your deduction later.

Group properties strategically

As you add more properties, think about which enterprise they fit into, as your enterprise grouping affects your requirements, UBIA calculations, and future acquisitions. Review your grouping choices annually as you acquire new units.

Coordinate depreciation and property basis planning

If you’re investing in multiple properties, consider how cost segregation or accelerated depreciation affects UBIA for QBI. While you don’t need to calculate this manually every year, being aware of the interaction between depreciation on rental property and QBI can increase your deduction in high-income years.

Monitor income thresholds proactively

Keep an eye on taxable income relative to QBI thresholds. If you’re nearing phase-in limits, knowing your W-2 wages or UBIA allows you to plan strategies that preserve the deduction, like adjusting salaries or timing expenses.

Review finances annually

QBI is not a “set it and forget it” deduction. Portfolio growth, acquisitions, or changes in income can impact your safe harbor eligibility, grouping, and UBIA calculations. A short annual review ensures you’re not leaving money on the table and that your documentation is ready if needed.

Use Baselane to automate bookkeeping

Baselane offers integrated banking and bookkeeping that helps you maintain “separate books,” a key safe harbor requirement.

With property-level banking, you can track rental income and expenses for each property in one place and categorize income and expenses per property, making Schedule E and QBI calculations much easier.

And, as every transaction feeds into the reporting dashboard, you can automatically see net rental income per RREE (the basis of QBI calculation) without burning hours with manual calculation. Get started with Baselane today!