IRS issues pass-through deduction guidance on rental properties
Since the tax law changes in 2017, there has been some confusion among real estate professional on whether rental real estate enterprises can qualify for the Qualified Business Income deduction in Code section 199A. The IRS recently issued guidance on what type of enterprises qualify for the safe harbor provision. Broadly, a real estate enterprises qualifies for a 199A deduction if:
Separate books and records are kept for each enterprise;
For tax years prior to 2023, the taxpayer spends at least 250 hours performing rental services (details are in the linked Notice); and
The taxpayer maintains contemporaneous records documenting the rental services.
Certain rental arrangements, such as triple-net leases, are exclude from the safe harbor provision. Taxpayers that do not meet the safe harbor requirements can otherwise establish that their enterprise is a trade or business, depending on the facts and circumstances.
If you’re purchasing a rental property, make sure to speak with the attorneys at Levine Law first. Contact us at www.levinelawma.com