RENTAL REAL ESTATE & THE NEW 199A 20% DEDUCTION

If a Taxpayer’s rental real estate activity is sufficiently regular, continuous, and considerable for the activity to constitute a section 162 trade or business, then that Taxpayer can qualify for the 199A 20% deduction. A rental real estate enterprise may be treated as a trade or business for purposes of section 199A if at least 250 hours of services are performed each taxable year with respect to the enterprise. This includes services performed by:

• Owners
• Employees
• Independent contractors

It includes time spent on:

• Maintenance
• Repairs
• Collection of rent
• Payment of expenses
• Provision of services to tenants
• Efforts to rent the property

Hours spent by any person with respect to the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, planning, managing, or constructing long-term capital improvements, and traveling to and from the real estate are not considered to be hours of service with respect to the enterprise.

The Taxpayer must maintain contemporaneous records, including time reports, logs, or similar documents, regarding the following (must start keeping records 01/01/2019):

Hours of all services performed
Description of services performed
Dates on which services were performed
Person or Company that performed the services

Separate books and records and separate bank accounts must be maintained for the rentalreal estate enterprise. Property leased under a triple net lease or used by the taxpayer (including an owner or beneficiary of an RPE) as a residence for any part of the year under section 280A would not be eligible for the 199A 20% deduction.

Commercial and Residential properties may NOT be grouped together for this.