199A Safe Harbor for Rentals

[KellyM]

This might be a dumb questions but I don't care. I want to make sure that I have my head around this Safe Harbor Election.

I have a LLC that has rentals (apartment buildings), they have a management company that does all the day to day stuff, they have a bookkeeper that tracks all the income they get from the property management company and pays bills (ie, property taxes, insurance, bookkeeping, tax prep fees).

So based off Notice 2019-07
They keep separate books so they meet this requirement

But how do I know if the management company
A) has 250 or more hours of rental services
B) keeps records of their time.

Or does the LLC have to be the one that meets the 250 hours. Meaning that they have to be checking up on the management company? Does the bookkeepers hours count?

I would say that they are a trade or business because they have owned these rentals for years and it a large source of income for them. But I also don't want to assume anything with this new tax codes


Any help would be great.

[Lion]

You count ALL hours worked on the rentals. If your client doesn't know how many hours, he should ask. He's paying for those services, so he has a right to know how much time he's paying for.

[JON]

For 2018 no written documentation is required for 2019 contemporary records required. Whoever bills for services should show where worked, what was done, and "new" hours spent. I think most in the business realize that, and those that do not will have to be taught. 1099s and getting the W-9s you tell them what the invoice has to include and the hours.

[nwtaxlady]

You count ALL hours worked on the rentals. If your client doesn't know how many hours, he should ask. He's paying for those services, so he has a right to know how much time he's paying for.

Does that mean the time the property management company spends on the property counts towards the 250 hours? So the taxpayer doesn't have to spend the 250 hours just someone?

And does it have to be continuous time spent? Or say one year they have to replace a roof and so time is spent that year because they replaced the roof. And that was the only time. Or does it have to be continuous time? I had heard someone say that it wouldn't qualify because it wasn't continuous time spent on it over time. Any word on that?

Another common situation would be they will be between tenants and lots of time spent in between tenants painting and repairing and getting it ready to rent again. Then don't spend anymore time on it for awhile. Does that count? So one year the property may qualify and then the next year not???

[Lion]

I'm so glad I have few, if any, rentals this year!

[terryats]

Also you have to attach a statement to return claiming safe harbor. be sure to read requirement for statement

[KBTS]

nwtaxlady,

Does that mean the time the property management company spends on the property counts towards the 250 hours? So the taxpayer doesn't have to spend the 250 hours just someone?

Yes, anyone the taxpayer hires to work on the property counts toward the 250 hours.


And does it have to be continuous time spent? Or say one year they have to replace a roof and so time is spent that year because they replaced the roof. And that was the only time. Or does it have to be continuous time? I had heard someone say that it wouldn't qualify because it wasn't continuous time spent on it over time. Any word on that?

The 250 hours must be met each year, so I am not sure what you mean by continuous. Each year is a separate safe harbor test.

Another common situation would be they will be between tenants and lots of time spent in between tenants painting and repairing and getting it ready to rent again. Then don't spend anymore time on it for awhile. Does that count? So one year the property may qualify and then the next year not???

Yes, you could potentially meet the safe harbor one year when there is a lot of work/repairs to be done and not meet it the next.

There is an excellent Facebook group dedicated to the discussion of the 199A deduction. It is a closed group, but tax professionals can join by sending a request. I do not think it would be appropriate to post the link here, but if you send me a PM, I can sent you the link to the group.

[Gretel]

I'm so glad I have few, if any, rentals this year!

How is this helpful in any way?

[Lion]

I apologize. It did not help the OP or this discussion in any way. I was just venting, expressing relief actually, that in the midst of explaining to clients again (which I did all last year in planning sessions) why their deductions are fewer and lower $ amounts and their balances due greater, I currently have no more renters. Sorry. I just joined a tax professionals group where venting is encouraged, so off I go.

[Gretel]

I apologize. It did not help the OP or this discussion in any way. I was just venting, expressing relief actually, that in the midst of explaining to clients again (which I did all last year in planning sessions) why their deductions are fewer and lower $ amounts and their balances due greater, I currently have no more renters. Sorry. I just joined a tax professionals group where venting is encouraged, so off I go.

I perfectly understand - next time make it a separate venting post and I will join you.

[New York Enrolled Agent]

Does that mean the time the property management company spends on the property counts towards the 250 hours? So the taxpayer doesn't have to spend the 250 hours just someone?

And does it have to be continuous time spent? Or say one year they have to replace a roof and so time is spent that year because they replaced the roof. And that was the only time. Or does it have to be continuous time? I had heard someone say that it wouldn't qualify because it wasn't continuous time spent on it over time. Any word on that?

Another common situation would be they will be between tenants and lots of time spent in between tenants painting and repairing and getting it ready to rent again. Then don't spend anymore time on it for awhile. Does that count? So one year the property may qualify and then the next year not???

I would suggest you read the IRS Notice 2019-07. It should answer all your questions. For example, one sentence says:

Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners.