Episode #117 What Investors Need to Know About New Tax Changes with Jack Kiley


During this segment of HyperFast Wealth, Dan Lesniak and Sunil Saxena speak with Jack Kiley, Principal at Mid-Atlantic IRA, about what you need to know about real estate investing and the new tax changes. This episode will answer some of the important questions you may have about qualified business income (QBI).

Episode Highlights: 

  • Jack receives many questions about qualified business income (QBI).
  • QBI is attached to rental property even though technically that’s not a business under what the tax code defines as a business.
  • QBI puts people who work in pass-through entities, or are self-employed, at parity with corporations.
  • The idea of the QBI deduction was to give self-employed people or small business owners the same effective taxable income rate as a corporation.
  • For different types of businesses, there are different calculations.
  • With rental property, you work down to what your net rental income is.
  • In the tax code, rental real estate is considered an investment activity.
  • Rental real estate is deductible, but you have to qualify.
  • You have to spend more than 250 hours in the activity to qualify.
  • These hours may include negotiating a lease, finding tenants, working on repairs, and overseeing someone else.
  • If you are refinancing that property, the time you spend to refinance is not included. Travel to and from the property is not included. Reviewing your financial statement is not included.
  • If you have a number of rental properties, you are allowed to aggregate those hours across all properties.
  • If you have all residential property, you can aggregate all the residential properties and the 250 hours could be across your multiple residential rentals. The same thing applies for commercial properties.
  • If you own residential rentals as well as commercial, you can’t group them together.
  • You have to treat the residential as one group and qualify, and you have to qualify separately on the commercial.
  • Keep contemporaneous records.
  • Mixed-use is a third category.
  • If you have the same number of properties in 2020 that you had in 2018, you are paying less tax assuming everything stays the same.
  • The 250 hours is a relatively low threshold to qualify.
  • If your income is over a certain amount, there is a phase-out.
  • If your properties are triple-net, those properties are not available for QBI.
  • If you buy the building and your business is the main tenant, then QBI is not available.
  • In capital intensive businesses, there’s no income phase-out.
  • For service businesses, there’s a phase-out. If you’re married, that phase-out starts at about $320k adjusted gross income and you’d be totally phased out once you hit $400k.
  • Flipping is a business activity.
  • If the activity is subject to self-employment tax, then it’s a business activity.
  • Flipping has no income threshold.
  • You pay Social Security and Medicare on your net earnings.
  • In 2019 you pay Social Security on the first $132k of wages. Medicare is on everything.
  • Income tax and self-employment tax are independent of each other and there are separate calculations.
  • Income tax is based on total income less deductions.
  • If you have income from a business that you participate in, that’s subject to self-employment tax which is 15.3%.
  • Passive real estate investors are unlikely to qualify for QBI.
  • The new tax law benefits people who use capital, such as rehabbers, development projects, and new construction.
  • Remember, to meet the requirement you must spend 250 hours per year in the business or if you’ve been in the business for over four years, you have to have spent that time in three of the last five years.

3 Key Points: 

  1. Real estate investment activity may qualify for the QBI deduction. 
  2. Keep contemporaneous records of the time you spend on your real estate investment projects annually. This will help with qualifying.
  3. Passive real estate investors are unlikely to qualify for QBI.

Tweetable Quotes:

  • If you have a number of rental properties, you are allowed to aggregate those hours across all properties.” – Jack Kiley
  • “I can foresee some situations where people who have commercial and residential activities, maybe their commercial properties pass but their residential don’t.” – Jack Kiley
  • “You have to spend more than 250 hours in the activity.” – Jack Kiley
  • “If the activity is subject to self-employment tax, then it’s a business activity.” – Jack Kiley
  • “If you are a passive investor in a real estate project, you’re not really spending any time there…Unless you own a lot of them and you can meet that 250-hour threshold, you’re probably not going to get a QBI deduction.” – Jack Kiley

Resources Mentioned:

How Would You Like to Listen?

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *

Search Podcasts

Enter any discussion keyword, name or episode # to find podcasts that match!!

Master the Buyer Game!

Double your buyer business income and reduce the time you are spending on buyer clients.

This course includes a buyer presentation, tools, and specific instructions to crush each part of this process. The result is raving fans that will refer for years to come.

Listen on Your Favorite Platform!

Never miss another episode of The HyperFast Agent!

Want to be a guest on the podcast?

  • Episode #196 The 4 E’s of TikTok for…

    In this episode of The Hyperfast Agent Podcast, we listen in as Lana Rodriguez, from the Lana Rodriguez Group, …

    Episode #195 Money For Life with Harry…

    On this segment of HyperFast Wealth, host Dan Lesniak speaks with Harry Stout, a former CEO of two of the …

    Episode #194 Buying an Investment Deal…

    On this segment of HyperFast Wealth, host Dan Lesniak speaks with co-host Sunil Saxena about the most …

    Episode #193 Business Growth Through…

    In this episode of The Hyperfast Agent Podcast, host Dan Lesniak speaks with Brooke Tate, an agent from the …

    Episode #192 The Keys to Successful…

    On this episode of the HyperFast Agent Podcast, host Dan Lesniak speaks with serial entrepreneur and author, …

    Episode #191 Solving Homebuyer Pain…

    In this episode of The Hyperfast Agent Podcast, host Dan Lesniak speaks with the Founder of HomeFlow, Laura …

    Episode #190 From Inside Sales to…

    On this episode of the HyperFast Agent Podcast, host Dan Lesniak speaks with Peter Applegate, an …

    Episode #189 Creative Ways to Finance…

    On this HyperFast Wealth segment, host Dan Lesniak speaks with real estate investing guru, Zachary Beach. …

    Episode #188 Copywriting to Attract…

    In this episode of The Hyperfast Agent Podcast, host Dan Lesniak speaks with copywriters Nick Tozier and …

    Episode #187 Expand Your Inventory with…

    In this episode of The Hyperfast Agent Podcast, host Dan Lesniak speaks with Steven Papageorge about a …