Section 199A and Real Estate Rental
Just hours ago, the IRS released much needed guidance regarding Section 199A and real estate rental. It provides a safe-harbor test which, if met, will qualify the real estate enterprise ("RRE") under Section 199A for the qualified business income deduction.
Commercial rental must be separated from residential rental but similar residential properties may be aggregated. Rentals subject to a triple-net lease do not quailfy for the safe-harbor.
The bright-line test is 250 hours or more of rental services performed for the RRE per year The Notice provides what services qualify for the 250-hour test. In addition to the hour test, the taxpayer must:
1) Maintain separate books which reflect rental income and expenses for each RRE.
2) Maintain contemporaneous logs or records which provide the hours of services performed, a description of what services were performed, the dates performed, and who performed the services.
If a taxpayer fails to meet the safe-harbor test, they may still be treated as a RRE if they qualify as a trade or business under Reg. Section 1.199A-(1)(b)(14).
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