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When a Rental Activity Can Be Included as Qualified Business Income

March 19, 2019

The IRS has released a proposed revenue procedure that will allow individuals to treat rental real estate as a trade or business for the QBI deduction as long as certain requirements are met.

Under the safe harbor rule a rental real estate enterprise can be treated as a trade or business for Section 199A purposes for the 2018 tax year if it meets all of the following:

  • Separate books and records must be maintained for rental.
  • The taxpayer must perform 250 or more hours of rental services (defined on page 8 of the proposed revenue procedure) per year.
  • The taxpayer must maintain records regarding the following (after 2018 the records must be contemporaneous):
    • Hours and description of all services performed
    • Dates on which such services were performed
    • Who performed the services

A rental real estate enterprise is defined as an interest in real property held for the production of rents. 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 rent as a single enterprise.

If a taxpayer has a real estate rental that qualifies to be included in calculating the qualified business income deduction they must attach a signed statement attesting that the rental activity meets the above requirements. The wording for the statement is included on page 9 of the proposed revenue procedure.

See IRS Notice 2019-07 – Section 199A Trade or Business Safe Harbor: Rental Real Estate for more information.

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