• Skip to content
  • Skip to primary sidebar

Header Right

  • Home
  • About
  • Contact

Archives for October 2019

The 199A Real Estate Rental Safe Harbor Provision and You

October 30, 2019 by Admin

realtor holding keysThis addition to the Internal Revenue Code allows taxpayers to deduct 20 percent of any Qualified Business Income they receive during a tax year. But the exact definition of QBI had long been uncertain. IRC Section 162 states that a trade or business “generally includes any activity carried on for the production of income from selling goods or performing services.”

That’s not a very helpful definition, especially in the real estate ownership context. IRS Notice 2019-07 substantially clarified the picture. It establishes a safe harbor for real estate rental income. If such money meets the 2019-07 test, it is automatically QBI. However, the safe harbor provisions are still rather subjective, and there are some limitations.

Certified tax coaches may provide the information you need in these situations. These professionals help navigate the Tax Code’s complex provisions.

Specific Requirements

Instead of the income itself, or the property itself, the real estate safe harbor provision focuses on the landowner’s activities. If the owner spends at least 250 hours a year on rental activity, any income from that property is QBI and eligible for the 20 percent deduction. Rental activity includes things like:

  • Making the property available for rent or lease
  • Advertising the opening
  • Verifying rental application information
  • Negotiating lease terms
  • Executing completed leases
  • Collecting rent
  • Managing the property
  • Supervising employees or contractors

The owner can delegate these functions to partners, employees, or independent contractors. So, if the owner hires a part-time maintenance worker who spends Saturday mornings fixing sprinkler heads, servicing tenant appliances, and so on, those 200 hours count toward the 250-hour minimum.

Property procurement, improvement, and investment activities specifically do not count as rental activities. Time spent commuting to and from the property does not count toward the 250-hour minimum either.

There are also some exclusions. Owner-occupied property, even if it was only for one day in the year, never qualifies for the 199A income deduction. Triple net lease property (the tenant pays rent, utilities, taxes, and insurance) never qualified either.

Practical Considerations

For the most part, multi-unit property usually qualifies for the safe harbor allowance. It does not matter if the property is residential or commercial. It also does not matter if the owner intends to sell the property or move into it at a later date.

Single-unit property probably will not qualify. It’s very difficult to meet the hourly requirement in these situations. 250 hours is over six weeks of full-time work. Additionally, the aforementioned residency and lease restrictions often apply.

Contact a certified tax coach near you to learn more about the QBI deduction.

Filed Under: Business Tax, Certified Tax Coach

Primary Sidebar

Search

Archive

  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018

Category

  • Best Business Practices
  • Business Tax
  • Certified Tax Coach
  • Individual Tax
  • Investment
  • QuickBooks
  • Retirement
  • Uncategorized

Copyright © 2019 · https://www.csaccounting.com/blog