On January 18th the IRS Issued its final regulations for the New Tax Law's Qualified Business Deduction QBI. The Tax Cuts and Jobs Act TCJA is quite complicated and the QBI even more. So, I spent the weekend reading the final installment of the QBI regulations. The bottom line is that the IRS will allow renters of real property to qualify for the 20% business deduction. The IRS has even given a safe harbor election to ensure that taxpayers feel safe in doing so until the regulations are passed into law. I highly recommend speaking with a tax professional to get the details specific to your unique tax situation. However, if you called my office I would likely inform you of the basic requirements that the IRS has outlined to qualify for the Safe Harbor election.
(A) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;
(B) For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental enterprise. For taxable years beginning after December 31, 2022, in any three of the five consecutive taxable years that end with the taxable year (or in each year for an enterprise held for less than five years), 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental real estate enterprise; and
(C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.
To read more about the Safe Harbor Election: Rental Real Estate Business Deduction Safe Harbor - QBI
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Call Joseph Zimmer, EA, MBA or Jay Finn, CPA at: (713) 520-0010
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