Rentals and qualified business income 199a?

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JGoneRiding
Posts: 1566
Joined: Tue Jul 15, 2014 3:26 pm

Rentals and qualified business income 199a?

Post by JGoneRiding » Thu Dec 06, 2018 8:02 pm

Great I hate irs grey zones! I had no idea what so ever that rentals fell into this lovely new category though I guess it's a win??

We own 4 ish rentals. 1 was sold this year and had tons of hands on maintenance there is capital gains to deal with but most likely the rental part is a small loss

1 is 3 units and I am there most months doing some form of upkeep we will have a profit

1 is a single family but it was turned over this year and needed a lot of turn over stuff and the tenants are needy so I am there most months.

All of these seem to meet the qualification of active participation. BUT

The last one is a single family mobile. I literally have done nothing but drive by it to make sure ok a couple times this year, obviously that could change at any time, but still not required any sort of care this year . So it seems vague from every thing I read so far, and Congress hasn't expressly included rentals nor expressly denied them.

I manage all properties myself and deal with all tenant issues so it looks like I qualify. Overall the rentals always have a profit but that could change to a loss too at any time, not sure how the losses work if it's qbi bec normally I could deduct those (we make <150k)

So what or others doing? How are you interrupting this law?

I wouldn't have known at all except I use turbo tax, it's defiantly implying that this can be qbi but that the law is not clarified, the internet suggests that as well.

SuzBanyan
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Re: Rentals and qualified business income 199a?

Post by SuzBanyan » Sat Jan 19, 2019 10:09 am

A proposed safe harbor rule was published by the IRS yesterday: https://www.irs.gov/pub/irs-drop/n-19-07.pdf

A summary of the proposed safe harbor was given as follows in Reg 107892-18, also published yesterday:

“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. This includes services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, collection of rent, payment of expenses, provision of services to tenants, and efforts to rent the property. Hours spent by any person with respect to the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, planning, managing, or constructing long-term capital improvements, and traveling to and from the real estate are not considered to be hours of service with respect to the enterprise. The proposed safe harbor also would require that separate books and records and separate bank accounts be maintained for the rental real estate enterprise. Property leased under a triple net lease or used by the taxpayer (including an owner or beneficiary of an RPE) as a residence for any part of the year under section 280A would not be eligible under the proposed safe harbor.

A rental real estate enterprise that satisfies the proposed safe harbor may be treated as a trade or business solely for purposes of section 199A and such satisfaction does not necessarily determine whether the rental real estate activity is a section 162 trade or business. Likewise, failure to meet the proposed safe harbor would not necessarily preclude rental real estate activities from being a section 162 trade or business.”

There is a lot to unpack here and it may change prior to being finalized. However, if you meet the requirements of this proposed safe harbor — 250 hours in service to the property, separate books, records and bank accounts, not NNN and not used by the owner for any part of the year — I think most would be comfortable in taking the 199A deduction for 2018.

Edited to add: Although the summary from the Regulations referenced above include a requirement for a separate bank account, there does not appear to be any reference to this requirement in the proposed safe harbor linked above.

SRenaeP
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Re: Rentals and qualified business income 199a?

Post by SRenaeP » Mon Jan 21, 2019 9:37 am

Before this post, I interpreted the rules as such that I don't qualify (small investor with only two properties). After reading the post above, I still don't believe I qualify. 250 hours/yr = avg 4.8 hrs/wk. Even if I include the spent by people I hired to do maintenance and repairs, I don't think it comes close to 250 hours total.

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Silly Wabbit
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Re: Rentals and qualified business income 199a?

Post by Silly Wabbit » Mon Jan 21, 2019 12:11 pm

Is this per-property or can we aggregate multiple properties?

cherijoh
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Re: Rentals and qualified business income 199a?

Post by cherijoh » Mon Jan 21, 2019 12:18 pm

Silly Wabbit wrote:
Mon Jan 21, 2019 12:11 pm
Is this per-property or can we aggregate multiple properties?
250 hours on each property would be an awfully high hurdle to overcome. That would probably limit it to commercial apartment buildings with lots of units.

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Silly Wabbit
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Re: Rentals and qualified business income 199a?

Post by Silly Wabbit » Mon Jan 21, 2019 12:19 pm

Silly Wabbit wrote:
Mon Jan 21, 2019 12:11 pm
Is this per-property or can we aggregate multiple properties?
From the IRS publication linked above:
Taxpayers must
either treat each property held for the production of rents as a separate enterprise or
treat all similar properties held for the production of rents (with the exception of those
described in paragraph .05 of this section) as a single enterprise. Commercial and residential real estate may not be part of the same enterprise. Taxpayers may not vary
this treatment from year-to-year unless there has been a significant change in facts and
circumstances.
Looks like, yes, multiple properties may be aggregated to meet this safe harbor.

EddyB
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Re: Rentals and qualified business income 199a?

Post by EddyB » Thu Jan 24, 2019 8:34 pm

SRenaeP wrote:
Mon Jan 21, 2019 9:37 am
Before this post, I interpreted the rules as such that I don't qualify (small investor with only two properties). After reading the post above, I still don't believe I qualify. 250 hours/yr = avg 4.8 hrs/wk. Even if I include the spent by people I hired to do maintenance and repairs, I don't think it comes close to 250 hours total.
But that’s a safe harbor, not a minimum requirement.

Saving$
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Re: Rentals and qualified business income 199a?

Post by Saving$ » Sun Apr 14, 2019 11:02 am

1. In order to qualify for the QBI deduction for residential rental property in the future, does one have to take it for 2018? Or could one forgo this for 2018 and qualify in 2019? Reasons for doing so may include not meeting the specific safe harbor guidelines for 2018.

2. Can anyone clarify how one would be eligible for the QBI rental property WITHOUT meeting the safe harbor guidelines?

Topic Author
JGoneRiding
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Joined: Tue Jul 15, 2014 3:26 pm

Re: Rentals and qualified business income 199a?

Post by JGoneRiding » Sun Apr 14, 2019 4:43 pm

Saving$ wrote:
Sun Apr 14, 2019 11:02 am
1. In order to qualify for the QBI deduction for residential rental property in the future, does one have to take it for 2018? Or could one forgo this for 2018 and qualify in 2019? Reasons for doing so may include not meeting the specific safe harbor guidelines for 2018.

2. Can anyone clarify how one would be eligible for the QBI rental property WITHOUT meeting the safe harbor guidelines?
I have no idea the whole thing seems poorly and very late to determine. I gave up and filed for extension. I mean who keeps track of hours applied? I have never been thought to attempt to quantify that.

DrGoogle2017
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Re: Rentals and qualified business income 199a?

Post by DrGoogle2017 » Sun Apr 14, 2019 6:58 pm

The safe harbor came out too late for 2018. For people to keep track of hours and such, they need to make it clear in 2017.

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