The “Tax Cuts and Jobs Act”, which offers a 20% deduction of Qualified Business Income to pass-through entities, has finalized the qualifications for real estate rental enterprises. The IRS calls it the “Safe Harbor” for Section 199A. This proclamation defines what level of activity approves a rental business.
Here Is What You Need To Know If You Want To Qualify:
- You must maintain separate books and records for each real estate rental enterprise
- Real estate enterprises that have existed for less than four years, must have at least 250 hours of active rental time per year.
- Real Estate enterprises that have existed for longer than four years must have 250 hours of active rental time in the last three of the past five years.
- The taxpayer must have the following records
- Dates of all services performed
- Hours of all services performed
- Description of all services performed
- The person or enterprise who performed the services
What constitutes a rental service?
- Advertising for a property
- Time to negotiate leases
- Rent collection
- Maintenance or repair of a property
- Daily operation and management
- Supervision of hired contractors
What is not considered a rental service?
- Financial or investment services to an enterprise
- Financing new or existing properties
- Travel to and from real estate
- Management of capital improvements, including procuring new property
Here Is What Does Not Qualify Your Property For Safe Harbor:
- The property is used as a residence for any part of the year
- The property requires the tenant to pay taxes, insurance, utilities and maintenance
- The property is in common ownership with a business
- Property is partly a Specified Service Business
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