Question

Which one is QBI, business income or (deductible loss), and rental real estate income or ( deductible loss)

INTERVIEW NOTES 1. Emily Clark (DOB 04/29/1978) is single and has one young daughter Madison IDOB 07/31/2012) who lived with her all year. Emily was unemployed for two months in 2018 and cashed in her 401(k) savings to pay household expenses. She took courses this year at the community college to improve her job skills as a health aide. Emily tells you that she has total bingo winnings of $3,900 (no W-2Gs were issued) but also $2,600 of bingo losses. 2. After her period of unemployment, Emily started a part-time business as a housecleaner. She has documentation for the following income and expenses: $48,000 Fees received Supplies 9,620 Advertising expenses 1,600 Business gifts to 20 clients ($100 value per client gift) 2,000 Business computer purchased and put into service 12/1/18 3,150 Emily would like to take the maximum deduction for these expenses in 2018. 4. Emily purchased a rent house on 1/2/2018 for $200,000 ($150,000 allocated to the structure and $50,000 allocated to the land). She immediately rented it and has the following income and expenses for 2018: Rental income received ($800 x $12) $9,600 Mortgage interest 7,500 Real estate taxes 4,560 Maintenance expense 1,140 Homeowner's insurance 2,800 Emily actively participates in the management of the rent house but is not a real estate professional. The rental activity is not a qualified trade/business. 5. Emily tells you in the interview that she found a Rolex watch on the sidewalk near her home which she had appraised at $2,000. She kept the watch after being unable to find the rightful owner. DOCUMENTS

Answer 1

QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.

So, in the given question, winnings from bingo does not included in QBI.

QBI= income from business less expenditure incurred.

income from business= $48000less: expenses ($9620+ $1600+$2000)= $13220 (Deductible loss)

QBI= $48000-$13220= $34780.

Note: purchase of business computer should not be deducted as it is a purchase of fixed asset. it should be capitalised

RENTAL REAL ESTATE INCOME:

rental income recieved : $9600

less : maintenance expense $ 1140(deductible loss)

Income= $ 8460

Note: homeowners insurance is a personal expenditure therefore cannot be deducted from the income.