My Last Stab at Farm Rents as QBI
We continue to get questions regarding the status of farm rentals as being either subject to self-employment (SE) tax or qualifying as Qualifying Business Income (QBI). In my last post, I attempted to provide guidance on this and I may have added some to the confusion. Just simply because a landlord provides some services, etc. does not make the rent rise to the level of owing SE tax on the income. For example, a commercial building may provide security services, etc. These services will make the income QBI, but not make the income subject to SE tax.
In order for farm rental income to rise to the level of being subject to SE tax, the landlord must have enough participation in the activity. This participation is akin to being a partner with the farmer/tenant. Without this level, the income is simply not subject to SE tax, however, if there are sufficient services or expenses provided, it should be QBI.
In the meantime, I have worked up the following schedule of almost all of the farm rental arrangements that I can think of and provide my guidance on whether the income is subject to SE tax or qualifies as QBI.
The primary issue with all of this is that the proposed regulations simply do not give us any bright-line examples and the two examples that were provided actually make it even more muddled. We are hoping the final regulations will provide this clarity.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Could you explain Common Group. If the Dad rents land from his son that farms, does that rental of dad’s qualify a QBI?
Also if Wife rents land to Husband that farms, does wife qualify as QBI?