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June 1, 2019
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If my rental property is handled by a Property Management group, am I still considered a non-passive participant in this property?

  • June 1, 2019
  • 1 reply
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    Best answer by Coleen3

    It could be a hint that you are not able to take the QBI deduction but it is not definitive. Please see the rules below.

     

    If you meet these tests, you may qualify to take the Qualified Business Income (QBI) deduction under the "Conventional Rental IRS Notice 2019-07 Safe Harbor Test", below.  To claim the new QBI deduction, you need to select the button in the rental interview that says you qualify to take it.  

    Conventional Rental IRS Notice 2019-07 Safe Harbor Test:

    1)  On a regular basis, does the taxpayer consult with advisors, negotiate and execute leases, consult with or act as property managers or personally maintain, manage or supervise the rental activity of the above property, and does this activity continue throughout the year?

    2)  Does the taxpayer, employees, agents or independent contractor of the taxpayer spend at least 250 hours annually (per property) dealing with the advisors, managers or personally with tenants, repair or maintenance companies or on-site issues?

    3)  Does the taxpayer maintain contemporaneous (i.e. "at the time of occurrence") written calendar time records to prove the above regular, continuous activity?

    4)  The taxpayer must include a signed statement with the return that they meet the requirements of this procedure

     

    Updated 3/10/2020

     

     To qualify for QBI for rentals you do not have to meet SH requirements. Meeting Sec. 162 requires will suffice. You are the only one who can determine this qualification. To clarify, 250 hours are NOT part of Sec. 162 requirements.

     

    .02 Trade or business. Section 199A(d) defines a qualified trade or business as any trade or business other than a specified service trade or business (SSTB) or a trade or business of performing services as an employee.

     

     Section 1.199A-1(b)(14) defines trade or business for purposes of section 199A as a trade or business under section 162 other than the trade or business of performing services as an employee.

     

    In addition, § 1.199A-1(b)(14) provides that rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business conducted by the individual or a relevant pass-through entity (RPE) which is commonly controlled under § 1.199A-4.

     

    Sections 1.199A-5(b) and 1.199A-5(d) define an SSTB and the trade or business of performing services as an employee, respectively.

    https://www.journalofaccountancy.com/news/2019/sep/rental-real-estate-safe-harbor-qbi-deduction-201922135.html

     

     

    1 reply

    Coleen3Answer
    Employee
    June 1, 2019

    It could be a hint that you are not able to take the QBI deduction but it is not definitive. Please see the rules below.

     

    If you meet these tests, you may qualify to take the Qualified Business Income (QBI) deduction under the "Conventional Rental IRS Notice 2019-07 Safe Harbor Test", below.  To claim the new QBI deduction, you need to select the button in the rental interview that says you qualify to take it.  

    Conventional Rental IRS Notice 2019-07 Safe Harbor Test:

    1)  On a regular basis, does the taxpayer consult with advisors, negotiate and execute leases, consult with or act as property managers or personally maintain, manage or supervise the rental activity of the above property, and does this activity continue throughout the year?

    2)  Does the taxpayer, employees, agents or independent contractor of the taxpayer spend at least 250 hours annually (per property) dealing with the advisors, managers or personally with tenants, repair or maintenance companies or on-site issues?

    3)  Does the taxpayer maintain contemporaneous (i.e. "at the time of occurrence") written calendar time records to prove the above regular, continuous activity?

    4)  The taxpayer must include a signed statement with the return that they meet the requirements of this procedure

     

    Updated 3/10/2020

     

     To qualify for QBI for rentals you do not have to meet SH requirements. Meeting Sec. 162 requires will suffice. You are the only one who can determine this qualification. To clarify, 250 hours are NOT part of Sec. 162 requirements.

     

    .02 Trade or business. Section 199A(d) defines a qualified trade or business as any trade or business other than a specified service trade or business (SSTB) or a trade or business of performing services as an employee.

     

     Section 1.199A-1(b)(14) defines trade or business for purposes of section 199A as a trade or business under section 162 other than the trade or business of performing services as an employee.

     

    In addition, § 1.199A-1(b)(14) provides that rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business conducted by the individual or a relevant pass-through entity (RPE) which is commonly controlled under § 1.199A-4.

     

    Sections 1.199A-5(b) and 1.199A-5(d) define an SSTB and the trade or business of performing services as an employee, respectively.

    https://www.journalofaccountancy.com/news/2019/sep/rental-real-estate-safe-harbor-qbi-deduction-201922135.html