Can landlords take the QBI tax break?

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Topic Author
Loon11
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Joined: Wed Feb 29, 2012 6:07 pm

Can landlords take the QBI tax break?

Post by Loon11 » Mon Nov 12, 2018 9:17 pm

Does anyone have a clear understanding of the IRS stance on whether landlords can take the 20% deduction in rental income? I have been reading up on it and the latest information suggests No. There is nothing clear but some case reports have denied landlords according to an article in Forbes. One has to be real involved in the "business" and it must stand up to definition of business per regulation 162.

Hopefully, the IRS will clarify this before tax time but it is confusing.

DrakeSRT
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Re: Can landlords take the QBI tax break?

Post by DrakeSRT » Tue Nov 13, 2018 9:22 am

I believe so. One of the businesses spelled out is "investing" and I also see that dividends from qualified REIT are elgible.

SRenaeP
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Re: Can landlords take the QBI tax break?

Post by SRenaeP » Tue Nov 13, 2018 2:13 pm

DrakeSRT wrote:
Tue Nov 13, 2018 9:22 am
I believe so. One of the businesses spelled out is "investing" and I also see that dividends from qualified REIT are elgible.
Investing may be excluded depending on income.

Q5. What is a qualified trade or business?

A5. A qualified trade or business is any trade or business, with two exceptions:
1.Specified service trade or business (SSTB), which includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers

2.Performing services as an employee

SRenaeP
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Re: Can landlords take the QBI tax break?

Post by SRenaeP » Tue Nov 13, 2018 2:15 pm

Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
Does anyone have a clear understanding of the IRS stance on whether landlords can take the 20% deduction in rental income? I have been reading up on it and the latest information suggests No. There is nothing clear but some case reports have denied landlords according to an article in Forbes. One has to be real involved in the "business" and it must stand up to definition of business per regulation 162.

Hopefully, the IRS will clarify this before tax time but it is confusing.
My understanding (as a landlord) is that the answer is no. Rental income is not considered business income. That is why it's documented on Schedule E, not Schedule C, and does not allow you to qualify for self-employed retirement accounts such as solo 401k, SEP-IRA, etc.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Tue Nov 13, 2018 5:30 pm


Topic Author
Loon11
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Re: Can landlords take the QBI tax break?

Post by Loon11 » Tue Nov 13, 2018 9:19 pm

Thanks kksmom - we are well below the income limitations and fully do all the work of landlording - hiring contractors when needed, making repairs, screening the tenants, advertising and showing the duplex. So I am not sure still if IRS would view it as a business but we don't do it for fun. We also have a rental in NC but don't need as close follow up with it since the long term tenants are self-sufficient but we do take care of all the issues either by contacting contractors or replacing what's broken. We do travel there biannually to check on things.
I wonder if we should have ourselves made into an LLC now - think that would help? Might be a good idea anyway - just not sure how to do it or if it wold make any difference this late in the year.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Wed Nov 14, 2018 8:44 am

Not cpa/lawyer...

From what I have read, it doesnt matter if you hold the rental properties in your name /LLC with respect to the jobs act/QBI
We have personally found it beneficial in having a CPA well versed/experienced in real estate.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 24, 2019 8:32 am

Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
...
Hopefully, the IRS will clarify this before tax time but it is confusing.
Update
New IRS guidelines have come out : (REG-107892-18)

For QBI for rental prop owners they must sastisfy 250 hrs/yr in the rental business
The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.
However there are several other factors including income limits; property types- NNN dont count from what I understand...

https://www.google.com/url?sa=t&rct=j&q ... aUbQconLzw

Page 17 of pdf

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

https://www.sfchronicle.com/business/ne ... 545481.php

Topic Author
Loon11
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Re: Can landlords take the QBI tax break?

Post by Loon11 » Thu Jan 24, 2019 10:01 am

Thanks kksmom! I saw this recently and figured we'd qualify but I'm keeping a log of hrs spent. Our out of state property won't make it but we have a duplex here in town which we constantly have to deal with. I do file taxes on it as separate units since I started doing that years ago but I'm counting the hours spent on the duplex itself whether it is Unit A or B. It will be interesting to see how TurboTax deals with this. What is "NNN"?

pshonore
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Re: Can landlords take the QBI tax break?

Post by pshonore » Thu Jan 24, 2019 10:07 am

Fairly common with commercial property

https://en.wikipedia.org/wiki/Net_lease

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 24, 2019 10:09 am

NNN or Triple-net properties are commercial properties where the tenant or lessee is responsible for all operating costs - costs on building insurance, maintenance, and real estate taxes (the three “nets”) in addition to all other typical fees like rent and utilities.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 24, 2019 10:14 am

Keep a log - once you reach 750 hrs from enough properties ..you could /may qualify for real estate professional tax status

https://www.thetaxadviser.com/issues/20 ... rules.html
https://www.biggerpockets.com/renewsblo ... -loophole/

bighatnohorse
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Re: Can landlords take the QBI tax break?

Post by bighatnohorse » Thu Jan 24, 2019 10:51 am

250 hours in the rental business should be pretty easy to account for. It would include travel time, accounting, reading stuff such as this post and other publications. If your rental property is remotely located, it takes time from your life to go visit it. In fact, travel costs are part of tax equation, so "time" should be as well.
And if you lay awake at night thinking about your rental property, tenants, problems etc, you should be able to deduct the bedroom as temporary office space. :happy

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travelogue
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Re: Can landlords take the QBI tax break?

Post by travelogue » Thu Jan 24, 2019 10:56 am

There were a couple of recent AICPA podcasts on this. Might be worth listening:
On January 18th, the IRS released the highly-anticipated final regulations on Section 199A for the qualified business income deduction for pass-through entities. In this podcast, Bob Keebler, CPA/PFS shares details on the provisions, specifically Notice 2019-07 and answers:
  • When does real estate qualify as a trade or business for purposes of the 199A qualified business income deduction?
https://overcast.fm/+P33vDurlM
On January 18th, the IRS released the highly-anticipated final regulations on Section 199A for the qualified business income deduction for pass-through entities. In this podcast, Bob Keebler, CPA/PFS shares an overview of the IRS guidance that was released. Find out:
  • What are the major changes in Final 199A regulations, including changes to the aggregation regulations and how to net income across businesses?
  • What are the methods for calculating W-2 wages under Revenue Proc. 2019-11?
  • What is the real estate safe harbor under Notice 2019-07?
  • How do you use the basis increase with 754 election to compute UBIA?
  • What do you need to know about the new proposed 199A regulations?
https://overcast.fm/+P33tFuGyI

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travelogue
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Re: Can landlords take the QBI tax break?

Post by travelogue » Thu Jan 24, 2019 10:58 am

bighatnohorse wrote:
Thu Jan 24, 2019 10:51 am
250 hours in the rental business should be pretty easy to account for. It would include travel time, accounting, reading stuff such as this post and other publications. If your rental property is remotely located, it takes time from your life to go visit it. In fact, travel costs are part of tax equation, so "time" should be as well.
And if you lay awake at night thinking about your rental property, tenants, problems etc, you should be able to deduct the bedroom as temporary office space. :happy
Unfortunately, travel time, financial planning, and some other tasks that seem reasonably related were excluded by the regs. Take a listen to the podcasts I linked above.

cadreamer2015
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Re: Can landlords take the QBI tax break?

Post by cadreamer2015 » Thu Jan 24, 2019 11:02 am

I think this is a "safe harbor" set of rules from the IRS, pending final rules which haven't been issued yet. I'm not a tax expert, but this sounds to me like their may be other ways for landlords to qualify as earning QBI, but the IRS hasn't finished working on the issue (and many of the folks who would be working on that are not at work right now).

As I read reports on these "safe harbor" rules, the 250 hours counts not only the landlord's time, but time of any employees or contractors who work on the property. Also I think I read that travel time to visit the property doesn't count towards the 250 hours, but I don't think the IRS definitely ruled on hours lying in bed thinking about your rental property. :happy
De gustibus non est disputandum

Topic Author
Loon11
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Re: Can landlords take the QBI tax break?

Post by Loon11 » Thu Jan 24, 2019 10:51 pm

This is great information - I will listen to that podcast. I think its definitely fair to count time researching this question also. I must have spent 10 hrs trying to research how to get rid of squirrels eating holes in the rental to get in the attic. And still researching - after two squirrel guys and $1000K, the little critters have found new access. Next is moth balls in the holes.
Every trip we take to our rental takes 45 min RT and don't see why can't count that - a whole morning is used up going over and dealing with anything.
My log book is crude - a notebook hand written but there are no specific requirements that I read so far.

EddyB
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Re: Can landlords take the QBI tax break?

Post by EddyB » Thu Jan 24, 2019 11:10 pm

kksmom wrote:
Thu Jan 24, 2019 8:32 am
Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
...
Hopefully, the IRS will clarify this before tax time but it is confusing.
Update
New IRS guidelines have come out : (REG-107892-18)

For QBI for rental prop owners they must sastisfy 250 hrs/yr in the rental business
The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.
However there are several other factors including income limits; property types- NNN dont count from what I understand...

https://www.google.com/url?sa=t&rct=j&q ... aUbQconLzw

Page 17 of pdf

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

https://www.sfchronicle.com/business/ne ... 545481.php
I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Fri Jan 25, 2019 8:34 am

EddyB wrote:
Thu Jan 24, 2019 11:10 pm
kksmom wrote:
Thu Jan 24, 2019 8:32 am
Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
...
Hopefully, the IRS will clarify this before tax time but it is confusing.
Update
New IRS guidelines have come out : (REG-107892-18)

For QBI for rental prop owners they must sastisfy 250 hrs/yr in the rental business
The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.
However there are several other factors including income limits; property types- NNN dont count from what I understand...

https://www.google.com/url?sa=t&rct=j&q ... aUbQconLzw

Page 17 of pdf

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

https://www.sfchronicle.com/business/ne ... 545481.php
I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business.
No intention to mislead - those 250 hrs are proposed safe harbor laws, which would enable one to qualify for QBI
As regards other "minimum req" for rental activity to qualify as a trade or business in IRS eyes, possibly you could provide input... Iam not a cpa

As regards the the 250 hrs and whether the rental activity is a trade or business, from the regulation/pdf pg16..

"Providing bright line rules on whether a rental real estate activity is a section 162 trade or business for purposes of section 199A is beyond the scope of these regulations. Additionally, the Treasury Department and the IRS decline to adopt a position deeming all rental real estate activity to be a trade or business for purposes of section 199A. However, the Treasury Department and IRS recognize the difficulties taxpayers and practitioners may have in determining whether a taxpayer’s rental real estate activity is sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business. Accordingly, Notice 2019-07, 2019-XXX
- 17 -
IRB XXX released concurrently with these final regulations,provides notice of a proposed revenue procedure detailing a proposed safe harbor under which a rental real estate enterprise may be treated as a trade or business solely for purposes of section 199A.
Under the proposed safe harbor, a rental real estate enterprise may be treated as a trade or business for purposes of section 199A if at least 250 hours of services are performed each taxable year with respect to the enterprise

Topic Author
Loon11
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Re: Can landlords take the QBI tax break?

Post by Loon11 » Wed Jan 30, 2019 11:12 pm

I listened to the podcast provided in the link by travelogue and it was a little scary. Something I am not quite sure about is the part where it states one should aggregate their rentals and sign a sworn statement with your taxes. I have a duplex I treat as two units and an out of state rental - the out of state doesn't require 250 hrs (at least so far) but the duplex is local and we do more work here. I am unsure what the aggregation means - I suppose we may need to skip this year claiming of the 20% because who knew one needed to have such extensive records of every hour spent? I know going forward in 2019 to record every little thing timewise but I am afraid of being asked to prove 250 hrs in 2018. That is almost 10 hrs a week excluding driving time.
However, I expect that the IRS will need to decide how stringent it will be with its limited resources this year. I haven't done my taxes but I am not sure if I will try claiming it. I had 2 tenant openings this year and the last one in December had 41 leads that I either called, emailed, coordinated ameeting with etc. certainly that was a load of hours. If anyone is going to jump on it, let me know how it goes.

letsgobobby
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Re: Can landlords take the QBI tax break?

Post by letsgobobby » Thu Jan 31, 2019 1:56 am

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travelogue
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Re: Can landlords take the QBI tax break?

Post by travelogue » Thu Jan 31, 2019 8:57 am

I wonder if you might want to see what people are saying on the Real Estate focused sites, like Bigger Pockets. Here's a recent article:

https://www.biggerpockets.com/renewsblo ... deduction/

Might also be worthwhile checking their forums?

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 31, 2019 11:17 am

Loon11 wrote:
Wed Jan 30, 2019 11:12 pm
I listened to the podcast provided in the link by travelogue and it was a little scary. Something I am not quite sure about is the part where it states one should aggregate their rentals and sign a sworn statement with your taxes. I have a duplex I treat as two units and an out of state rental - the out of state doesn't require 250 hrs (at least so far) but the duplex is local and we do more work here. I am unsure what the aggregation means - I suppose we may need to skip this year claiming of the 20% because who knew one needed to have such extensive records of every hour spent? I know going forward in 2019 to record every little thing timewise but I am afraid of being asked to prove 250 hrs in 2018. That is almost 10 hrs a week excluding driving time.
However, I expect that the IRS will need to decide how stringent it will be with its limited resources this year. I haven't done my taxes but I am not sure if I will try claiming it. I had 2 tenant openings this year and the last one in December had 41 leads that I either called, emailed, coordinated ameeting with etc. certainly that was a load of hours. If anyone is going to jump on it, let me know how it goes.
Aggregation is where the tax payer files a statement along with tax returns "aggregating" all the rental properties for tax purposes. It is often necessary to do that to qualify the number of hours whether for QBI purposes or Real estate professional status., as often one cant meet the 250 hrs (QBI) or 750 hr (REP) limits with one single rental property.

However the requirements for QBI and REP varies besides the hour limits.

For both QBI and REP , one is required/safer keeping a log of hours, detailing dates/property /job hrs and brief description

As the Biggerpockets link to cpa Brandons post/and comments to qns, for QBI apparently hours at your rental property by contractors etc count for the 250 hr limits..
"QN: I can easily record my own time as applied to the 250 hour safe harbor threshold, but how do I determine the time spent by my property manager/agents, and by derivation the contractors they retain to work on my properties?

Brandons answer: Good question. I imagine we’ll get better instruction when the IRS takes landlords to court 🙂

In the meantime, document your time and your interactions with property managers and contractors. If a contractor is performing work on your property, ask them to write a start and stop time on the invoice. Ask your PM each month via email to provide you with the number of hours they spent on your property.

Obviously the above is hard to do but I don’t have better guidance at this point."


And remember to obtain w9s from anyone who does more than ?600$ work/yr. This is for issuing 1099 at end of yr(corps dont require being issued if i remember right)
We obtain w9 from anyone who works at the property prior to the work being started, as they may end up doing several small jobs thru the year resulting in >600$/yr payments. Also some of the smaller contractors prove difficult to obtain w9 once they are already paid

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 31, 2019 2:09 pm

letsgobobby wrote:
Thu Jan 31, 2019 1:56 am
er, why is TaxAct saying I qualify for QBI with a single rental property?

in Balsamo v. Comm’r., T.C. Memo 1987-477 it was established as a general rule that owning only one rental property can qualify as a business operation.

WRT QBI, one would need to meet the 250 hrs wrt that one rental property, which may be easier if that one retal property is a 50 unit apt :D or say a rental property which required extensive rehab - in the latter case, doubt there would be any taxable income after rehab/expenses/depreciation

letsgobobby
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Re: Can landlords take the QBI tax break?

Post by letsgobobby » Thu Jan 31, 2019 3:00 pm

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Topic Author
Loon11
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Re: Can landlords take the QBI tax break?

Post by Loon11 » Thu Jan 31, 2019 5:03 pm

I normally don't do 1099's - read on Turbo sometime in the past no longer needed. I'm probably wrong

EddyB
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Re: Can landlords take the QBI tax break?

Post by EddyB » Thu Jan 31, 2019 7:56 pm

kksmom wrote:
Thu Jan 31, 2019 2:09 pm
letsgobobby wrote:
Thu Jan 31, 2019 1:56 am
er, why is TaxAct saying I qualify for QBI with a single rental property?

in Balsamo v. Comm’r., T.C. Memo 1987-477 it was established as a general rule that owning only one rental property can qualify as a business operation.

WRT QBI, one would need to meet the 250 hrs wrt that one rental property, which may be easier if that one retal property is a 50 unit apt :D or say a rental property which required extensive rehab - in the latter case, doubt there would be any taxable income after rehab/expenses/depreciation
You continue to be wrong on the same point, or to fail to note the absolutely critical context for your statement. A landlord needs to meet 250 hours in order to satisfy the safe harbor. There’s is no reason to assert that a person must meet the 250 hours in order to take the favorable treatment.

kksmom
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Re: Can landlords take the QBI tax break?

Post by kksmom » Thu Jan 31, 2019 8:46 pm

EddyB wrote:
Thu Jan 31, 2019 7:56 pm
kksmom wrote:
Thu Jan 31, 2019 2:09 pm
letsgobobby wrote:
Thu Jan 31, 2019 1:56 am
er, why is TaxAct saying I qualify for QBI with a single rental property?

in Balsamo v. Comm’r., T.C. Memo 1987-477 it was established as a general rule that owning only one rental property can qualify as a business operation.

WRT QBI, one would need to meet the 250 hrs wrt that one rental property, which may be easier if that one retal property is a 50 unit apt :D or say a rental property which required extensive rehab - in the latter case, doubt there would be any taxable income after rehab/expenses/depreciation
You continue to be wrong on the same point, or to fail to note the absolutely critical context for your statement. A landlord needs to meet 250 hours in order to satisfy the safe harbor. There’s is no reason to assert that a person must meet the 250 hours in order to take the favorable treatment.

I had replied to your earlier post , in a few posts above
kksmom wrote:
Fri Jan 25, 2019 8:34 am
EddyB wrote:
Thu Jan 24, 2019 11:10 pm
kksmom wrote:
Thu Jan 24, 2019 8:32 am
Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
...
Hopefully, the IRS will clarify this before tax time but it is confusing.
Update
New IRS guidelines have come out : (REG-107892-18)

For QBI for rental prop owners they must sastisfy 250 hrs/yr in the rental business
The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.
However there are several other factors including income limits; property types- NNN dont count from what I understand...

https://www.google.com/url?sa=t&rct=j&q ... aUbQconLzw

Page 17 of pdf

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

https://www.sfchronicle.com/business/ne ... 545481.php
I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business.
No intention to mislead - those 250 hrs are proposed safe harbor laws, which would enable one to qualify for QBI
As regards other "minimum req" for rental activity to qualify as a trade or business in IRS eyes, possibly you could provide input... Iam not a cpa

As regards the the 250 hrs and whether the rental activity is a trade or business, from the regulation/pdf pg16..

"Providing bright line rules on whether a rental real estate activity is a section 162 trade or business for purposes of section 199A is beyond the scope of these regulations. Additionally, the Treasury Department and the IRS decline to adopt a position deeming all rental real estate activity to be a trade or business for purposes of section 199A. However, the Treasury Department and IRS recognize the difficulties taxpayers and practitioners may have in determining whether a taxpayer’s rental real estate activity is sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business. Accordingly, Notice 2019-07, 2019-XXX
- 17 -
IRB XXX released concurrently with these final regulations,provides notice of a proposed revenue procedure detailing a proposed safe harbor under which a rental real estate enterprise may be treated as a trade or business solely for purposes of section 199A.
Under the proposed safe harbor, a rental real estate enterprise may be treated as a trade or business for purposes of section 199A if at least 250 hours of services are performed each taxable year with respect to the enterprise
As most real estate folks are aware the difficulty with previous tax courts law rulings were , the guidelines for a rental activity being "sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business" - the " sufficiently regular, continuous, and considerable activities" tend to be subjective among different investors - whether that applies to 4,6,10 units. and what constituted "regular and considerable"

there is this article where real estate cpas couldnt agree what rental activity constitues a trade/business level -
https://www.sfchronicle.com/business/ne ... 181697.php

Again on biggerpockets a real estate cpa Brandon article
https://www.biggerpockets.com/renewsblo ... deduction/
"Before the final regulations dropped, there was confusion as to whether rental real estate would qualify for the QBI deduction. The source of the confusion was in determining how rental real estate activities could rise to the level of a “trade or business” under Section 162. If rental activities could be classified as Section 162 trades or businesses, the income produced by such activities would qualify for the QBI deduction under Section 199A.

The problem is that the analysis of whether or not rentals qualify for a Section 162 trade or business is challenging due to murky regulations and case law. We needed (hoped) for some form of a bright line test to tell us whether rentals would qualify as a trade or business and thus allow us to use the QBI deduction against net rental income.
Revenue Procedure 2019-7: A Safe Harbor

Along with releasing the final regulations on Section 199A, the IRS also released Revenue Procedure 2019-7. This Revenue Procedure provides a Safe Harbor that allows a rental activity to rise to the level of a Section 162 trade or business if..."


So yes while the 250 hrs which I again clarified is indeed a proposed safe harbor rule, which allows a real estate investor to use that to qualify for the QBI.

As regards your statements
"There’s is no reason to assert that a person must meet the 250 hours in order to take the favorable treatment."
and
"I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business. "


- I again would like to hear your "minimum req" for rental activity to qualify as a trade or business in IRS eyes...
Last edited by kksmom on Thu Jan 31, 2019 9:03 pm, edited 1 time in total.

EddyB
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Joined: Fri May 24, 2013 3:43 pm

Re: Can landlords take the QBI tax break?

Post by EddyB » Thu Jan 31, 2019 8:59 pm

kksmom wrote:
Thu Jan 31, 2019 8:46 pm
EddyB wrote:
Thu Jan 31, 2019 7:56 pm
kksmom wrote:
Thu Jan 31, 2019 2:09 pm
letsgobobby wrote:
Thu Jan 31, 2019 1:56 am
er, why is TaxAct saying I qualify for QBI with a single rental property?

in Balsamo v. Comm’r., T.C. Memo 1987-477 it was established as a general rule that owning only one rental property can qualify as a business operation.

WRT QBI, one would need to meet the 250 hrs wrt that one rental property, which may be easier if that one retal property is a 50 unit apt :D or say a rental property which required extensive rehab - in the latter case, doubt there would be any taxable income after rehab/expenses/depreciation
You continue to be wrong on the same point, or to fail to note the absolutely critical context for your statement. A landlord needs to meet 250 hours in order to satisfy the safe harbor. There’s is no reason to assert that a person must meet the 250 hours in order to take the favorable treatment.

I had replied to your earlier post , in a few posts above
kksmom wrote:
Fri Jan 25, 2019 8:34 am
EddyB wrote:
Thu Jan 24, 2019 11:10 pm
kksmom wrote:
Thu Jan 24, 2019 8:32 am
Loon11 wrote:
Mon Nov 12, 2018 9:17 pm
...
Hopefully, the IRS will clarify this before tax time but it is confusing.
Update
New IRS guidelines have come out : (REG-107892-18)

For QBI for rental prop owners they must sastisfy 250 hrs/yr in the rental business
The notice outlines numerous requirements, but here’s the big one: Between 2018 and 2022, at least 250 hours of rental services must be performed each year for the business. Starting in 2023, at least 250 hours must be performed in three of the five past years.
However there are several other factors including income limits; property types- NNN dont count from what I understand...

https://www.google.com/url?sa=t&rct=j&q ... aUbQconLzw

Page 17 of pdf

Rental services under this definition include advertising the space for rent, negotiating and executing leases, screening tenants, collecting rent, maintenance and repairs, purchasing materials and supervising employees and independent contractors. “Rental services may be performed by owners or by employees, agents, and/or independent contractors,” the notice said.

It added that rental services do not include financial or investment management activities, such as arranging financing, procuring property, studying financial statements and hours spent traveling to and from the real estate.

https://www.sfchronicle.com/business/ne ... 545481.php
I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business.
No intention to mislead - those 250 hrs are proposed safe harbor laws, which would enable one to qualify for QBI
As regards other "minimum req" for rental activity to qualify as a trade or business in IRS eyes, possibly you could provide input... Iam not a cpa

As regards the the 250 hrs and whether the rental activity is a trade or business, from the regulation/pdf pg16..

"Providing bright line rules on whether a rental real estate activity is a section 162 trade or business for purposes of section 199A is beyond the scope of these regulations. Additionally, the Treasury Department and the IRS decline to adopt a position deeming all rental real estate activity to be a trade or business for purposes of section 199A. However, the Treasury Department and IRS recognize the difficulties taxpayers and practitioners may have in determining whether a taxpayer’s rental real estate activity is sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business. Accordingly, Notice 2019-07, 2019-XXX
- 17 -
IRB XXX released concurrently with these final regulations,provides notice of a proposed revenue procedure detailing a proposed safe harbor under which a rental real estate enterprise may be treated as a trade or business solely for purposes of section 199A.
Under the proposed safe harbor, a rental real estate enterprise may be treated as a trade or business for purposes of section 199A if at least 250 hours of services are performed each taxable year with respect to the enterprise
As most real estate folks are aware the difficulty with previous tax courts law rulings were , the guidelines for a rental activity being "sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business" - the " sufficiently regular, continuous, and considerable activities" tend to be subjective among different investors - whether that applies to 4,6,10 units. and what constituted "regular and considerable"

there is this article where real estate cpas couldnt agree what rental activity constitues a trade/business level -
https://www.sfchronicle.com/business/ne ... 181697.php

Again on biggerpockets a real estate cpa Brandon article
https://www.biggerpockets.com/renewsblo ... deduction/
"Before the final regulations dropped, there was confusion as to whether rental real estate would qualify for the QBI deduction. The source of the confusion was in determining how rental real estate activities could rise to the level of a “trade or business” under Section 162. If rental activities could be classified as Section 162 trades or businesses, the income produced by such activities would qualify for the QBI deduction under Section 199A.

The problem is that the analysis of whether or not rentals qualify for a Section 162 trade or business is challenging due to murky regulations and case law. We needed (hoped) for some form of a bright line test to tell us whether rentals would qualify as a trade or business and thus allow us to use the QBI deduction against net rental income.
Revenue Procedure 2019-7: A Safe Harbor

Along with releasing the final regulations on Section 199A, the IRS also released Revenue Procedure 2019-7. This Revenue Procedure provides a Safe Harbor that allows a rental activity to rise to the level of a Section 162 trade or business if..."


So yes while the 250 hrs which I again clarified is indeed a proposed safe harbor rule, which allows a real estate investor to use that to qualify for the QBI.

As regards your statements
"There’s is no reason to assert that a person must meet the 250 hours in order to take the favorable treatment."
and
"I think you’re misleading people—those are the terms of a proposed safe harbor, not minimum requirements for rental activity to qualify as a trade or business. "
- I again would like to hear your "minimum req" for rental activity to qualify as a trade or business in IRS eyes...
It’s a facts-and-circumstances judgement, and even the IRS is not pushing the claim that any particular facts or circumstances are insufficient to qualify. I can’t make a determination for another person, although I have made it for myself, notwithstanding that I doubt I would have satisfied the safe harbor for 2018 (not that I had reason to keep track of those hours prior to publication of the safe harbor).

Topic Author
Loon11
Posts: 259
Joined: Wed Feb 29, 2012 6:07 pm

Re: Can landlords take the QBI tax break?

Post by Loon11 » Fri Feb 01, 2019 1:45 pm

just read the article in "bigger pockets" and saw this paragraph under qualifying for safe harbor:
"The taxpayer maintains 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. This requirement will not apply to taxable years beginning prior to January 1, 2019."

Does this mean that for 2018 we don't need all those logs of each minute spent? Going forward we have been warned and also will start getting W-9's but this sounds like it starts in 2019 for all the logs, etc. Is this what you gather from this?

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