IRS Revenue Procedure 2019-38 has been finally released, providing a rental real estate safe harbor regarding Qualified Business Income (QBI). It is the final version of the proposed rental real estate ‘safe harbor’ procedures set forth and proposed in January 2019 in IRS Notice 2019-17. It provides ‘safe harbor’ provisions under which a real estate enterprise is treated as a trade or business for section 199A deductions. IRC Section 199A provides up to a 20% deduction for non-corporation taxpayers of qualified business income. A real estate rental may qualify for a deduction if it otherwise meets the definition for a trade or business.
Real estate rented as a triple net lease is excluded from using the ‘safe harbor’ procedure. The IRS accepted our comments during the review process and only excluded in the Rev.Proc., Section 3 .05(A ) “Real estate used by the taxpayer (…) as a residence under section 280A (d).” Thus only real estate rentals personally used by the owner for the greater of 14 days or 10% of the days rented cannot use the safe harbor. For a summary of requirements, see IRS Newsservice IR-2019-158, dated 9/24/2019. For the full text of Revenue Procedure 2019-38, go to irs.gov/pub/irs-drop/rp-19-38.pdf