Message Board › QBI & Rental Properties
This topic contains 9 replies, has 6 voices, and was last updated by Alan Keyfman 2 months, 2 weeks ago.
February 28, 2019 at 10:05 am #145431Brent DavisParticipant
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.
March 11, 2019 at 4:57 pm #147586Timothy FolkersParticipant
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.
March 21, 2019 at 9:04 am #148630Linda SpeirsParticipant
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?)
March 26, 2019 at 2:58 pm #149038Anonymous
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?
April 1, 2019 at 1:50 pm #149686Anonymous
Anyone? Sorry to bump it seems to be a very common setup, so curious how others are handling it.
May 8, 2019 at 1:02 pm #157859Anonymous
Lynn, Sandy, Mike… anyone? Any thoughts on HOA payments as a qualifier for QBI? Thanks.
May 8, 2019 at 1:54 pm #157884Mike GiangrandeParticipant
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:
- The rentals return a profit each year (this evidences a profit motive); and
- 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:
- Involved in the activity with continuity and regularity; and
- 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.
May 8, 2019 at 2:16 pm #157894Alan KeyfmanParticipant
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?
May 9, 2019 at 1:04 pm #158315Mike GiangrandeParticipant
Yes, I believe they do. Those people are acting as your agents. Therefore, they are acting directly on your behalf.
May 9, 2019 at 2:26 pm #158348Alan KeyfmanParticipant
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?