Question for Landlords re 199a as business

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Loon11
Posts: 284
Joined: Wed Feb 29, 2012 6:07 pm

Question for Landlords re 199a as business

Post by Loon11 » Wed Oct 09, 2019 10:08 pm

I have a rental duplex I consider a business and am planning on using the 20% deduction this year. We have been tracking our hours and the hours of contractors and are going to meet the 250 hrs.

we also have a rental property out of town which doesn't require 250 hrs of our time. Is it OK to just claim the business one the one property and not the other? I know the safe harbor requires both but did not feel the out of town property would meet the requirements. My other question is this: since I am not claiming the out of town property as a business, must I send a 1099-misc for repair work? I had 3 trees fall on the house with the hurricane and also needed a new HVAC but not sure if I need to do 1099's for this non-business property.

I had repair work for the duplex and do plan to do the 1099-misc. I probably can do the other if needed, although will need to get their TIN#, etc but don't want to if not necessary.

I do our taxes so am always nervous about doing it correctly. Have always done it using TT and at this point, feel like using a CPA would take more work getting him/her up to speed than doing it myself.

User avatar
4nursebee
Posts: 1320
Joined: Sun Apr 01, 2012 7:56 am
Location: US

Re: Question for Landlords re 199a as business

Post by 4nursebee » Thu Oct 10, 2019 3:39 am

I do not know what you are talking about 250 hrs and 20% or 1099s

Get a CPA, this is what they do for a living.
4nursebee

cadreamer2015
Posts: 875
Joined: Wed Apr 08, 2015 1:52 pm
Location: North County San Diego

Re: Question for Landlords re 199a as business

Post by cadreamer2015 » Thu Oct 10, 2019 7:24 am

If it were me I would consider this 1 business (real estate rental). But I am not the IRS.
De gustibus non est disputandum

Clarice
Posts: 139
Joined: Thu Jun 14, 2018 3:26 pm
Location: Orlando FL

Re: Question for Landlords re 199a as business

Post by Clarice » Thu Oct 10, 2019 8:05 am

4nursebee wrote:
Thu Oct 10, 2019 3:39 am
I do not know what you are talking about 250 hrs and 20% or 1099s

Get a CPA, this is what they do for a living.
Because you specifically don’t know what is being discussed then the OP should hire a CPA? Not helpful.

User avatar
Wiggums
Posts: 1558
Joined: Thu Jan 31, 2019 8:02 am

Re: Question for Landlords re 199a as business

Post by Wiggums » Thu Oct 10, 2019 8:25 am

I don’t believe that there is a clear answer to your question. That means you will need yo be able yo justify your position with the documentation should you be audited.

“The Treasury Department and the IRS are aware that whether a rental real estate enterprise is a trade or business is the subject of uncertainty for some taxpayers,” it said in the notice. “To help mitigate this uncertainty,” the notice contains a proposed revenue procedure that provides a “safe harbor” under which a rental real estate enterprise will be treated as a trade or business under Section 199A and thereby qualify for the 20 percent deduction starting with the 2018 tax year.

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.

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.

Also, real estate used by the owner “as a residence for any part of the year” is not eligible for this safe harbor.

Spirit Rider
Posts: 11510
Joined: Fri Mar 02, 2007 2:39 pm

Re: Question for Landlords re 199a as business

Post by Spirit Rider » Thu Oct 10, 2019 8:35 am

Loon11 wrote:
Wed Oct 09, 2019 10:08 pm
I have a rental duplex I consider a business and am planning on using the 20% deduction this year. We have been tracking our hours and the hours of contractors and are going to meet the 250 hrs.

we also have a rental property out of town which doesn't require 250 hrs of our time. Is it OK to just claim the business one the one property and not the other? I know the safe harbor requires both but did not feel the out of town property would meet the requirements.
Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise.

The IRS says these hours include services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to rent the property.

A rental real estate enterprise is defined, for purposes of the safe harbor, as an interest in real property held for the production of rents. A rental real estate enterprise may consist of multiple properties. The interest must be held directly or through a disregarded entity. Taxpayers either must treat each property held for the production of rents as a separate enterprise or must treat all similar properties held for the production of rents as a single enterprise.

If your two rental properties are directly held or through an LLC and treated as a single enterprise. Then any hours spent on either property by you or anyone else on your behalf counts towards the 250 hours.

You haven't mentioned a critical second part of the safe harbor requirement. You must have separate financial accounts and records for the real estate enterprise and your personal finances. There must be no commingling of accounts, income or expenses.

Topic Author
Loon11
Posts: 284
Joined: Wed Feb 29, 2012 6:07 pm

Re: Question for Landlords re 199a as business

Post by Loon11 » Thu Oct 10, 2019 9:38 pm

Thanks - Spirit Rider - I opted out of the safe harbor option due to the fact that the out of town property did not meet the needed hrs spent on management. Plus the option said once done, was permanent. I have separate accounts for each property and also keep all receipts and records of time spent. When rents start to grow in the checking accounts, we transfer it out into a savings account. Since the properties generally do make a profit and the above expense funds go into a savings account, we have used some profit for ourselves for other expenses not related to the property.

I expect that using the business deduction will be further clarified in the future and not sure if we will risk using it again. the irs may not feel we are stringent enough in record keeping (I keep a written journal/account. If it weren't for the huge capital gain we would have to pay, we would sell.

Post Reply