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Do your clients’ rental properties qualify for the rental real estate safe harbor for the QBID? By: National Association of Tax Professionals
November 10, 2021

You may notice this tax season that many of your clients have taken advantage of the 2021 housing market and either purchased rental property or started a rental property enterprise. A rental property enterprise is defined as an interest in real property held for the production of rents and may consist of an interest in a single property or interests in multiple properties.

Rev. Proc. 2019-38 provides a safe harbor for determining when a rental real estate enterprise may be treated as a trade or business for purposes of QBI. There are some types of property that are not eligible for the safe harbor. In terms of tax benefits, owning a rental property (or properties) can provide some tax benefits.

For clients who have a rental property enterprise, and meet the requirements under the safe harbor, will be treated has having a trade or business for purposes of the qualified business income (QBI) deduction. For those clients who do not meet the safe harbor, they may still qualify as a trade or business if the §199A regulations are met.

Rental property decision tree

Here’s a handy flowchart that will help you decide if your clients’ real estate rental enterprise qualifies for the QBID safe harbor.

Infographic DeterminingTaxTreatmentRentalProperty-1

Activities that are qualifying time for safe harbor include:

  • Advertising to rent or lease the real estate
  • Negotiating and executing leases
  • Verifying information contained in prospective tenant applications
  • Collecting rent
  • Daily operation, maintenance and repair of the property
  • Managing real estate
  • Purchasing materials and supplies
  • Supervising of employees and independent contractors

For more information on this topic and how to best use this flow chart, register for our Determining Tax Treatment of Rental Property on-demand webinar.

Deduction
Estate
QBI
Real Estate
Rental Property
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penAbout National Association of Tax Professionals

The National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.

The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.

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