The IRS finalized the safe harbor rule that allows rental real estate activities to be treated as a trade or business for purposes of the qualified business income deduction (QBI) in September 2019.
A rental activity can be considered as a trade or business for QBI purposes if it meets all of the following:
- Separate books and records are maintained
- The following number of hours devoted to the rental activity must have been performed:
- In existence less than 4 years – 250 hours each year
- 4 years or more: 250 hours at least 3 of the past 5 years
- Must maintain contemporaneous records
If the rental activity qualifies the taxpayer must attach a statement to their return that includes the following:
- A description of all rental real estate property or properties (including the address and rental category) that qualify for the safe harbor
- A description of real estate properties acquired or disposed of during the taxable year
- A statement that the requirements for the safe harbor have been satisfied.
For more information see the following:
- IRS News Release (IR-2019-158) of September 24, 2019 – IRS finalizes safe harbor to all rental real estate to qualify as a business for qualified business income deduction
- Revenue Procedure 2019-38
