United States:
IRS Announces New Real Estate Safe Harbor For 20% QBI Deduction
11 February 2019
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
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Section 199A introduced a new 20% deduction for qualified
business income (previously discussed here). To qualify for the deduction, income
must be from a trade or business. Whether rental activity rises to
the level of a trade or business can often be a difficult question
to answer. In Notice 2019-07 (found here), the IRS announces a safe harbor under
which a rental real estate enterprise will constitute trade or
business for Section 199A purposes if the enterprise performs 250
or more hours of rental services during the year. Any enterprise
wishing to fall within this safe harbor must maintain records such
as a time log or calendar documenting the services. If the
real estate is rented under a triple net
lease, the safe harbor is not available.
The IRS notice provides a helpful safe harbor, but it is
important to note that it is only a safe harbor. The fact that a
real estate business cannot satisfy the safe harbor does not mean
that it might not otherwise qualify as a trade or business for
Section 199A purposes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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