Safe Harbor for rental property

[liberty]

A retired teacher own 7 rental properties. Does 250 hours safe harbor is for one property or aggregated hours for all 7 properties?

[Dude]

Her choice but if she wants to QBID, it seems it would be easier to aggregate the properties into one enterprise. Putting all the properties together though will have its own consequences in that you lose the advantage of such things as separate liability if put under an LLC. I don't think it will play very well if you aggregate the properties for QBID then try to claim each property is a separate entity for liability even if you create a separate LLC for each one. My fear about QBID is that you apparently cannot revoke it so I wonder if the make up of her enterprise will also be set in stone?

[nwtaxlady]

I have a similar situation. My client has 7 rentals of which 6 are either duplex or 4 plex. I had him calculate his time based on per property (not unit). Only 1 property met the 250 hours spent on it. Does that mean only take the QBI deduction on the one property that exceeded 250 hours spent on it for the year?

[DaveinTexas]

The way I understand this convoluted law is the 250 hour test is the safe harbor, and the time of 250 hours is for each property, including the agents that work for and service the property (handymen, renovation contractors, etc).

But, remember, if a rental real estate enterprise fails to qualify for the safe-harbor rule, it can still be treated as a business for QBI deduction purposes if it meets the general definition of a business set forth in the QBI regulations. Unfortunately, that definition isn’t very clear. Yeah, I took that from an article.

I would say it it would be difficult for a rental to qualify under the definition of a business if you have a triple net lease or a management company that simply cuts you checks. But, if your rental doesn’t qualify as a business, it is possible the safe harbor would bail you out (I’m sure the Mgmt company and their agents, plus your time would get you close).

The 162 Regs have been in place for years. I’d look to them first to determine if the rental activity qualifies as a business. If you pass that test, who cares about grouping and who cares about a safe harbor rule?

Don’t take it from me though, do some real digging. Hey, it takes a big man to admit he’s wrong. I am not...a big man.

[liberty]

A new client who has a land rental. Last year his preparer took QBI on his land rental. I don't think he qualify for safe harbor. If it is irrevokable then what would you do for this year?

[TAXNJ]

A new client who has a land rental. Last year his preparer took QBI on his land rental. I don't think he qualify for safe harbor. If it is irrevokable then what would you do for this year?

As DaveinTexas states "

…..Don't take it from me though, do some real digging. Hey, it takes a big man to admit he's wrong. I am not...a big man.

" and the footnote "Circular 230 Disclosure: Don't even think about using the information in this message!" - which is important to note.


Rather here some IRS info to research for your scenario:

https://www.irs.gov/newsroom/irs-fin...come-deduction