Common Versus Aggregation

Published on: 00:24AM Nov 20, 2018

There appears to be some confusion on aggregation and common ownership.  For rent income to default to being qualified business income (QBI), the only requirement is that the rent being received by the rental entity is paid by another business entity (not a qualified entity) and that both entities are under common ownership.  This includes C corporations and the fiscal year of the entity does not matter.  Here are some examples:

  • January 31 C corporation owned by three brothers rents ground from an LLC owned by the same three brothers.  The rent income is QBI since this is a common group (100% ownership in each entity)
  • Same, but the LLC is owned by the three brothers and their two sisters.  This is still common ownership since the brothers own 60% of the LLC and 100% of the corporation and both ownership amounts is at least 50%.
  • Same, but now the LLC is owned by the three brothers and three sisters.  Rent income is still QBI since the brothers own at least 50% of the LLC.
  • Same, but now the LLC is owned 49% by the brothers and 51% by the sisters.  This is not common ownership since the brothers are under 50%, therefore, the rent income does not default to QBI.  It may still be QBI, but not by default.

The aggregation rules are there to allow taxpayers with income over the threshold to aggregate income, wages and qualified property together to create a larger limit on their QBI deduction.  In order to do this, the group:

  • Must be part of a common group,
  • Must have the same fiscal year-ends,
  • Must not be a C corporation or specified service trade or business (SSTB), and
  • Must meet two of three tests (which almost all farm operations will meet).

Again this is only important if the taxpayer is over the threshold.  You will never make an aggregation election if you are under the threshold since you don't need it and if you make it you are locked into for all future years.  

Conclusion, A corporation can pay rent and have that rent qualify as QBI as long as it is part of a common group.