Does My Rental Income Qualify for the 20 Percent QBI Deduction? (Section 199A)

Published August 10, 2026

Section 199A survived its scheduled 2025 sunset and is now permanent law. Rental income can qualify for the deduction, but only if it rises to a trade or business or fits the IRS safe harbor in Revenue Procedure 2019-38, which requires 250 hours of rental services a year and a signed statement.

The short answer

Section 199A did not sunset. A 2025 amendment removed its prior December 31, 2025 expiration and made the deduction permanent. Rental income can qualify for the 20 percent qualified business income deduction, but only if the rental activity is a trade or business under section 162 or fits the IRS safe harbor in Revenue Procedure 2019-38, which requires 250 hours of rental services a year, separate books, and a signed statement filed with the return.

Last verified: August 10, 2026

Section 199A is still law in 2026

Section 199A, enacted in the 2017 Tax Cuts and Jobs Act, originally carried a sunset: by its statutory text it did not apply to tax years beginning after December 31, 2025. A 2025 amendment, Public Law 119-21, struck that termination language. As now codified at 26 U.S.C. section 199A, the section no longer contains a sunset date. In its place the amendment added a guaranteed minimum deduction, set at $400 and indexed for inflation after 2026, for taxpayers with at least a modest amount of qualified business income.

That is the answer to the threshold question landlords should ask before anything else: the deduction did not disappear at the end of 2025, and the framework below still applies for 2026 returns.

Rental income is not automatically QBI

The deduction under section 199A is 20 percent of qualified business income from a trade or business. A lot of small landlords assume rental income counts automatically because it appears on Schedule E next to other business activity. It doesn't automatically qualify. Whether a rental activity rises to a section 162 trade or business is a facts-and-circumstances test the Internal Revenue Code does not spell out with a bright line, which is exactly why the IRS built a safe harbor.

There are two paths to a rental activity counting as QBI-eligible:

1. The activity independently meets the section 162 trade or business standard, based on the regularity, continuity, and profit motive of your activity. This has no fixed hour count and depends on your specific facts.
2. The activity meets the safe harbor in Revenue Procedure 2019-38, which sidesteps the facts-and-circumstances question entirely by giving you a checklist. Meet it, and the IRS treats the rental enterprise as a trade or business for section 199A purposes without further argument.

The Revenue Procedure 2019-38 safe harbor checklist

| Requirement | What it means |

|---|---|

| Separate books and records | Keep income and expenses for each rental real estate enterprise (or the combined enterprise, if you elect to treat similar properties as one) separately from your other activities |

| 250 hours of rental services per year | For an enterprise that's existed less than 4 years, 250 or more hours of rental services must be performed each year. For an enterprise held 4 years or more, the requirement is 250 hours in at least 3 of the last 5 years |

| Contemporaneous records | Maintain time logs, calendars, or similar records showing hours of service, a description of the services, the dates performed, and who performed them |

| Signed statement | Attach a statement to your timely filed return, for each year you rely on the safe harbor, attesting that the requirements were met |

Rental services that count toward the 250 hours include advertising, negotiating leases, verifying tenant applications, collecting rent, day-to-day operation and maintenance, and supervising employees or contractors who do that work. Time spent on your own investment activities, arranging financing, or reviewing financial statements as an investor does not count.

What's excluded from the safe harbor even if you clear the hours

Revenue Procedure 2019-38 carves out certain property regardless of how many hours you log:

• Real estate used by the taxpayer as a residence for any part of the year, including under section 280A rules
• Property rented under a triple net lease, where the tenant pays taxes, insurance, and maintenance in addition to rent
• Property rented to a trade or business conducted by the taxpayer or a commonly controlled entity, which is instead addressed by a separate self-rental rule, not this safe harbor

A South Bay owner with one triple-net commercial tenant, or a duplex where they occupy one unit, should not assume the safe harbor covers that property even at well over 250 hours a year. It may still qualify under the general section 162 facts-and-circumstances test, but that's a different and less certain analysis.

Failing the safe harbor doesn't mean you lose the deduction

This is the point owners misread most. The safe harbor is a shortcut, not a gate. If your rental activity doesn't meet the 250-hour threshold or you didn't keep contemporaneous logs, you can still claim the QBI deduction if the activity separately rises to a trade or business under the general standard. You just lose the automatic protection the safe harbor provides and have to be prepared to support the trade-or-business determination on its facts if the IRS asks.

Income limits still apply

Even a rental activity that clears the trade-or-business bar is subject to the same income-based limitations that apply to any pass-through business under section 199A: at higher taxable income levels, the deduction can be limited by W-2 wages paid and the unadjusted basis of qualified property. Most small landlords with modest total taxable income aren't affected by these limits, but they become relevant as income rises.

FAQ

Do I need to log exactly 250 hours myself, or can a property manager's hours count?

Rental services performed by you, your employees, or contractors you hire, including a property management company, can count toward the 250-hour threshold, provided you maintain the contemporaneous records Revenue Procedure 2019-38 requires showing what was done, when, and by whom.

What if I own two rentals and neither hits 250 hours alone?

Revenue Procedure 2019-38 allows you to treat similar rental properties as a single enterprise for purposes of the safe harbor, which lets you combine hours across properties, provided you meet the separate-books requirement for the combined enterprise and hold to that grouping consistently.

Does a single-family home I rent out qualify differently than a small apartment building?

The safe harbor applies the same standard regardless of property type. What changes the analysis is triple net leases and personal use, not whether the property is a single-family rental or a multifamily building.

Is the 20 percent deduction going away again soon?

Based on the current text of 26 U.S.C. section 199A, no sunset date is currently on the books. Tax law can be amended again by future legislation, so this should be reconfirmed each filing season rather than assumed to be permanent in practice.

What happens if I claim the safe harbor but didn't actually keep the records?

The safe harbor statement you sign is an attestation under penalties of perjury. If you can't substantiate the hours and services if asked, you're exposed on that specific claim, separate from whether the underlying activity might still have qualified under the general trade-or-business test.

This is general information, not tax advice. Confirm your rental activity's QBI eligibility, including whether the safe harbor or the general trade-or-business test applies to your specific property, with a CPA or tax attorney.

Topics: taxes, QBI deduction, section 199A, rental real estate, safe harbor

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Schofield Properties is a family run property management company at 323 Richmond St, El Segundo, CA 90245. We have managed the South Bay since 1972 and personally oversee about 186 doors today. Book a call to talk about your property.