One of the more impactful elements of the Tax Cuts and Jobs Act is the new Section 199A deduction on qualified business income (QBI). One of the open issues for taxpayers has been to determine whether a rental activity is a qualified trade or business. The IRS has recently provided guidance in this area by defining a safe harbor whereby the deduction may be claimed.
In this regard, the taxpayer is required to:
- Maintain separate books and records for each rental activity (or the combined enterprise if aggregated together).
- Demonstrate that 250 hours or more of “rental services” per year for the activity (or combined enterprise) were performed by the owners, employees or independent contractors with respect to the enterprise.
- Maintain detailed records showing dates/hours of services performed and who performs them.
For these purposes, rental services may include advertising to rent, negotiating and executing leases, verifying tenant applications, collection of rent, daily operation and maintenance, management of the real estate, purchase of materials, and supervision of employees and independent contractors.
For guidance pertaining to your specific circumstances, I have added a link to the full IRS publication below: