IRS Provides Section 199A Safe Harbor for Rental Real Estate

In a Notice that includes a proposed Revenue Procedure, the IRS has provided a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of the Qualified Business Income (QBI) deduction.

To qualify for the safe harbor:

(1) separate books and records must be maintained for each enterprise;

(2) 250 or more hours of rental services must be performed; and

(3) contemporaneous records must be maintained.


The safe harbor does not apply to real estate used by the taxpayer as a residence under IRC Sec. 280A or real estate rented under a triple net lease. An enterprise that fails safe harbor requirements may still qualify as a trade or business under the regulations. Taxpayers may rely on the safe harbor, which generally applies to tax years ending after 12/31/17, until the proposed Revenue Procedure is published in final form.