QBI & Rental Properties

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Message Board QBI & Rental Properties

This topic contains 9 replies, has 6 voices, and was last updated by Alan Keyfman 1 week, 2 days ago.

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  • #145431
    Brent Davis
    Participant

    Taxpayer is fully employed in a non-real estate occupation. He also owns three rentals/condos, in which he collects the rents, hires repairmen, etc. (he is the property manager). No 250 hour safe harbor. The rentals return a profit each year. Don’t his rentals qualify as a sec 162 trade or business for QBI purposes? He regularly and continuously manages the properties, and they return a profit.

  • #147586
    Timothy Folkers
    Participant

    I understood that the hours worked included those you hired – still need to keep track of the hours.   So assuming his and those he hires exceed the 250 hours – I would say yes it would qualify – Probably want to both elect to aggregate and file the safe harbor.

  • #148630
    Linda Speirs
    Participant

    If taxpayer hasn’t aggregated these rentals in the past, may he aggregate them beginning this year to qualify for 250 hour safe harbor? (Can he “change” to a trade/business for Section 199A?)

  • #149038
    Anonymous

    Would you consider HOA and the people they hire to be an extension of “people you hire”? Meaning if you have a rental condo where owner is minimally involved but pays monthly into HOA, would that count towards 250 hours?

  • #149686
    Anonymous

    Anyone? Sorry to bump it seems to be a very common setup, so curious how others are handling it.

  • #157859
    Anonymous

    Lynn, Sandy, Mike… anyone? Any thoughts on HOA payments as a qualifier for QBI? Thanks.

  • #157884
    Mike Giangrande
    Participant

    Two statements in Brent’s initial post are the most relevant when making the determination that these rental properties are a trade or business even without meeting the 250 hour safe harbor:

    1. The rentals return a profit each year (this evidences a profit motive); and
    2. He regularly and continuously manages the properties (this is the Groetzinger standard).

    Groetzinger v. Comm.  was a U.S. Supreme Court case and is the most widely cited authority for determining whether an activity (any activity) is a trade or business. In that case, the Court stated that the taxpayer must be:

    1. Involved in the activity with continuity and regularity; and
    2. The taxpayer’s primary purpose for engaging in the activity must be for income or profit.

    Groetzinger  dealt with a professional gambler, but subsequent cases have applied this standard to other activities, including rental real estate.

  • #157894
    Alan Keyfman
    Participant

    Mike, sorry, but that does not answer the question whether hiring a management company or paying into HOA monthly (that hires all gardeners, landscapers, tradesmen, etc. for your benefit or on your behalf) helps qualifying the rental as a trade or business. Would either be considered as some sort of “extension of you” to help you run rental as a for profit business and qualify as QBI?

     

     

  • #158315
    Mike Giangrande
    Participant

    Alan,

    Yes, I believe they do. Those people are acting as your agents. Therefore, they are acting directly on your behalf.

  • #158348
    Alan Keyfman
    Participant

    Mike, thanks! That’s my understanding of the language in the Notice 2019-07 (page 8).

    “Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners”.

    Seems easy to satisfy 250 hour requirement with an HOA unless you need to split the time between all HOA members. Do you think it would be a problem after 2018 when “the contemporaneous records requirement” will apply to taxable years beginning after December 31, 2018?