You might be eligible for the Qualified Business Income Deduction. The IRS recently issued a notice
on a proposed revenue procedure providing a safe harbor for certain
real estate enterprises that may be treated as a trade or business for
purposes of the QBI deduction. According to this notice:
According to the Notice, you have to satisfy the following requirements during the taxable year with respect to the Rental Real Estate Enterprise:
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Separate books and records are
maintained to reflect income and expenses for each rental real estate enterprise
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For taxable years beginning prior to
January 1, 2023, The taxpayer must perform 250 or more hours of rental services
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The taxpayer must maintain
contemporaneous records, including time reports, logs, or similar documents,
regarding the following: (i) hours of all services performed; (ii) description of all
services performed; (iii) dates on which such services were performed; and
(iv) who performed the services. Such records are to be made available for inspection at the
request of the IRS.
The contemporaneous records
requirement does not apply to taxable years beginning prior to January 1, 2019 (i.e. 2018)
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Rental services for purpose of this
revenue procedure include: (i) advertising to rent or lease the
real estate; (ii) negotiating and executing leases; (iii) verifying information
contained in prospective tenant applications; (iv) collection of rent; (v) daily
operation, maintenance, and repair of the property; (vi) management of the real estate; (vii)
purchase of materials; and (viii) supervision of employees and independent
contractors. Rental services may be performed by owners or by employees, agents, and/or
independent contractors of the owners. The term rental services does not include financial or
investment management activities, such as arranging financing; procuring
property; studying and reviewing financial statements or reports on operations; planning,
managing, or constructing long term capital improvements; or hours spent traveling to and from
the real estate.
- Real estate used by the taxpayer (including an owner or beneficiary
of an RPE relying on this safe harbor) as a residence for any part of the year is not eligible
for this safe harbor.
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Real estate rented or leased under a
triple net lease is also not eligible for the safe harbor.
