The IRS on Tuesday issued a revenue procedure that provides a safe harbor for taxpayers under which a rental real estate enterprise will be treated as a trade or business for purposes of the qualified business income (QBI) deduction, (20 percent of qualified business income).Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes if:
- At least 250 hours of services are performed each tax year with respect to the enterprise.The IRS says these hours include services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to rent the property. However, hours spent in the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, and traveling to and from the real estate, will not be considered hours of service for the enterprise.
- The taxpayer must maintain contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed, description of all services performed, dates on which those services were performed, and who performed the services.
- The taxpayer or relevant passthrough entity must attach a statement to the tax return filed for the tax year(s) the safe harbor is relied upon. This must be done each year.