Question

Does Residential Rental Property qualify for the safe harbor enterprise QBI deduction per Rev Proc 2019-07 ?

Forum|Forum|5 years ago
February 28, 2021
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The "Rental Real Estate Safe Harbor Statement" form on my 1040 tax return requires an affirmation that "The property was not used as a residence for any part of the year." Does this reference refer to use by the TAXPAYER or BY ANYONE? I am confused because:

1. The only exclusions to the safe harbor listed in Section 3, paragraph .05 of Rev Pro 2019-07 are properties rented under triple-net leases and "Real estate used by the TAXPAYER (including an owner or beneficiary of an RPE relying on this safe harbor) as a residence for any part of the year . . ."

2. Section 3 of Rev. Proc 2019-07 states that "Commercial and RESIDENTIAL real estate may not be part of the same enterprise." If this qualification refers to any person, why would the Rev Proc specifically distinguish between residential and commercial real estate?

I would appreciate confirmation that this affirmation refers to the taxpayer and not anyone. If anyone, please tell me where it so states in the Rev. Proc. Thank you.

ColeenD3

Mixed use properties may be treated as a single RREE or may be split into their residential and commercial uses. So, if a building had stores on its first floor and apartments on the other floors, the owner would have two options. The taxpayer/owner could treat the entire building as a single RREE but couldn’t combine it with other properties. Or, the taxpayer could operate the apartments and the stores as separate rental real estate. If the taxpayer separated the property, then the taxpayer could combine the apartments with other apartment properties the owner owned.

Some real estate rental arrangements cannot qualify as RREE under Rev Proc 2019-38. Those include:

Real estate used by the taxpayer or one of its owners as a residence
Real estate subject to a triple net lease, a lease where the tenant must pay for taxes, fees, insurance, and other maintenance of the property
Real estate used in a trade or business conducted by the taxpayer or an affiliate
Real estate of which any part is a specified services trade or business under Section 199A regulations, including law, accounting, health, performing arts, consulting, investing, athletics, and securities trading.

Please see these links for the entire articles:

Safe Harbor

199A