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
    1. Dates of all services performed
    2. Hours of all services performed
    3. Description of all services performed
    4. 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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