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December 1, 2019

Safe Harbor Allows QBI Deduction for Rental Real Estate Businesses


Journal of Accountancy
By Sally P. Schreiber, J.D.

The IRS issued a revenue procedure that provides a safe harbor for taxpayers and relevant passthrough entities (RPEs), under which a "rental real estate enterprise" will be treated as a trade or business for purposes of the qualified business income (QBI) deduction of Sec. 199A. A real estate business that does not meet the safe harbor may still qualify as a trade or business if it otherwise meets that definition under the Sec. 199A regulations. The revenue procedure finalizes rules that the IRS proposed in January in Notice 2019-07.

Under the safe harbor, a rental real estate enterprise that has been in existence less than four years 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. For rental real estate enterprises that have been in existence for at least four years, this requirement is met if, in any three of the five consecutive tax years that end with the tax year, 250 or more hours of rental services are performed per year for the rental real estate enterprise. Read more.

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