Massachusetts Association of Realtors Home
  • About
    • About MAR

      Our mission

      Contact Us 

      Contact MAR   

      Become a Realtor®

      What you need to know to join MAR   

      MAR Charitable Foundation

      Realtors® giving back to the community

      Local Realtor® Associations

      Find the local Realtor® Association closest to you

      Association Leadership Team

      Meet the volunteer leaders of MAR

      Association Professional Staff

      Meet the professional staff that helps manage the Association


      Realtor Search Function Powered by realtor.com
      Find a Realtor

      Find a REALTOR®

  • Members
    • Forms

      Industry-leading Ziplogix™

      Market Data

      Comprehensive sales data covering Massachusetts

      Association Governance

      How the Association runs

      Member Benefits

      Your gateway to education, services, and discounts

      Sharable Content

      Free, sharable resources

      Education

      Classes, webinars and online continuing education

      New Members

      Information for new MAR members 

      Calendar

      Find upcoming classes, meetings and other events

      Government Affairs

      Federal, state and local issues that impact real estate

      MAR Podcasts

      Home of all MAR Podcasts

      Legal and Ethics

      Understand the latest laws and right way to conduct business

      Committees

      Member-led committees that guide MAR

      Report an Issue

      How can we improve?

      Profile

      Your MAR Member Info

      Log In

      MAR Members, click to Log In

  • Public
    • Realtor® Logo
      Why Work With a Realtor®

      Code of Ethics

      Get to know the Realtor® difference

      Buyer and Seller Tips

      Buying or selling a home? Here's what you need to know

      First-Time Homebuyer?

      Are you a first-time homebuyer? We're here to help  

      Market Data

      Comprehensive sales data covering Massachusetts

      Find a Realtor®

      Realtor search function powered by realtor.com 

      Become a Realtor®

      What you need to know to join MAR

      Become an Agent

      Not a Realtor® yet? Start your path to becoming a Realtor® today

      MAR Gratitude Project

      Nominate the unsung heroes of the Realtor® community
      facebook_sqaure__1_
      2020 Installation of Officers
  • News
    • BSR_Nov_Dec19_NavBay State Realtor®

      MAR Online

      The official blog of MAR

      From the Bay State Realtor®

      Stories and articles from the official print publication of MAR

      Press Releases

      The latest news and information from MAR
      FAQFeatured Blog Post



03.01.2019|

Rental Real Estate and the 20 Percent Qualified Business Income Deduction

The Tax Cuts and Jobs Act of 2017 (TCJA) provides a new deduction the likes of which I have never seen. The Qualified Business Income Deduction (pursuant to Internal Revenue Code Section 199A) provides a 20 percent deduction of profits from any trade or business. The purpose of this article is to provide some clarity to the real estate world pertaining to the IRS requirements for real estate rental profits to qualify for this deduction. Obviously, this is a complex deduction and the services of competent tax advisors is a must.
by Chris Bird, CFP | Mar 01, 2019
 


Since December 22, 2017, the date that the TCJA became effective, and throughout 2018, the tax professional community was uncertain as to how this deduction affected rental property profits. Thankfully, the IRS clarified the issue for us this January. 

Safe Harbor: 

On January 18, 2019, the IRS issued Notice 2019-07, which provides a safe harbor for investors in real estate rentals. An IRS safe harbor provides guidance, that if followed, will assure the tax- payer that the IRS has little interest in conducting an audit on the issue. 

The safe harbor covers both residential rental property and commercial, but specifically excludes properties subject to a triple net lease. 

The safe harbor requires very specific record keeping of real estate property owners beginning January 1, 2019. Due to the date of the safe harbor, the extensive record keeping requirements do not apply to 2018. 

The safe harbor requires that rental real estate owners must spend 250 hours or more per year on their real estate rental enterprise. A rental real estate enterprise may consist of one property or multiple properties. (I recommend the latter.) 

In counting the 250 hours, the owner may include time that they personally spend on the properties, as well as the time spent by employees, managers, or independent contractors. The safe harbor specifically lists the activities for which time can be counted, and basically includes everything an owner, manager, or independent contractor will spend time on, except for analyzing financial reports, construction or major renovation hours, and time spent traveling to and from the property or properties. 

I believe those real estate investors with one or two rental properties are going to have difficulty in coming up with 250 hours per year. In addition, if your real estate rentals consistently show losses on your tax return, then the safe harbor is of no use to you. Only rental real estate owners with enough properties and profits will truly benefit by the IRS Notice, if the owners are willing to take the time to keep the necessary records. 

This safe harbor is not to be taken lightly, as the IRS requires a statement under penalty of perjury to be attached to the tax return claiming this safe harbor. I recommend that all property owners using this safe harbor read IRS Notice 2019-07 carefully. 

Chris Bird, CFP is a tax expert and national lecturer on individual and corporate income taxes, and real estate issues.  


Leave a comment
Newest on top Oldest on top
Load more comments
comment-avatar
|

mar_online_logo

MAR Online is your home for the latest news impacting the real estate industry. Get up-to-date information on the housing market, legislative happenings on Beacon Hill, and national trends. Find all the content in our print publication Bay State Realtor® plus online exclusives, press releases, and perspectives from MAR staff.

Latest Issue of Bay State Realtor® Magazine:

BSR Cover Nov-Dec 2019

Tagged Posts: 

  • Anne Meczywor (3)
  • Bay State Realtor (63)
  • Blog (3)
  • BSR (1)
  • Catherine Taylor (2)
  • Day on the hill (1)
  • Foreclosure (1)
  • Government Affairs (4)
  • July August (8)
  • Justin Davidson (7)
  • Legal (1)
  • Press Releases (32)
  • Rita-Coffey (1)
  • September October (11)
  • State Political Coodinators (1)
  • State Political Coordinators (1)
  • Theresa Hatton (1)
MAR Logo
©2019 Massachusetts Association of Realtors
Privacy | Terms of Use | Report an Issue
MAR Facebook Page MAR Twitter Page MAR Linkedin Page MAR Youtube Page MAR Instagram Page MAR Pintrest Page
Realtors Badge