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DISCLAIMER: This In Brief section offers a series of business, real estate, employment, estate planning and tax bulletins prepared by the attorneys at Fauver, Large, Archbald & Spray, LLP. This is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution or use of this information.

Q:  Does my rental real property activity qualify for a deduction under the Tax Cuts Act?

Rental Real Property Activities Can Be a Qualified Business for the Qualified Business Income Deduction under the federal Tax Cuts Act

When the Tax Cuts and Jobs Act of 2017 (Tax Cuts Act) was enacted, there was confusion as to whether rental real property activity qualified for the Act’s deduction under IRC, Section 199A.  This year the IRS issued Notice 2019-07 (Notice) with the final Treasury Regulations for the Tax Cuts Act.

This Notice provided a safe harbor, meaning that if you do certain things in conjunction with your rental real estate, you will qualify for the Deduction.  The four requirements to qualify for the safe harbor for the Deduction are:

  1. Separate books and records of income and expenses for the real estate activity
  2. 250 hours annually by the taxpayer dedicated to the rental activity (cannot be a passive investment)
  3. Service records kept contemporaneously for the activity
  4. Statement on your return that the above requirements have been fulfilled

Simple and easy.  Just keep records of activities, expenses, and income and be a bit active in it.  There’s programs through which you can track your time.  Your Deduction may be significant but may be tempered by other provisions of the Tax Cuts Act.  The requirements are similar to those of California’s Franchise Tax Board requirements for rental deductions.

For more information, visit our Land Use and Real Estate practice area.