Section 199A for Rental Properties (again!)

Technical topics regarding tax preparation.
#1
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Sorry for being dense on an old topic! Got a client who has a full-time job and owns 9 residential rental properties. He provides all the management for these properties, they are all profitable, he personally collects all the rent each month, he personally inspects the properties each month, and I have issued 1099's on them for several years. Can I avoid the safe harbor perjury statement to claim the 199A deduction? I think the facts and circumstances of this clearly makes it a trade or business. Thanks for reading.
 

#2
HowardS  
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I would...absolutely.
Retired, no salvage value.
 

#3
EZTAX  
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I would.
 

#4
JAD  
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I would
 

#5
WEISSEA  
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Can I avoid the safe harbor perjury statement to claim the 199A deduction?

I would not. Why expose your client to a audit letter for such a slam dunk case. Knowlegable expert on another board suggests there will be filters to look at 199A as gov needs to measure $ impact of QBID. With a 1000 Revenue agents being hired related to TCJA one can opine that QBI is a natural audit training area and a simple check the QBI box for a rental won't sufice.
 

#6
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One would think they'd be trained to look for more than a safe harbor statement... There's inarguably a cost-benefit to every examination, audit, etc and logic would demand they focus on areas where the odds are in their favor.

I'm sure someone with nine rentals wouldn't get the same level of trade or business scrutiny if a QBID is taken for the rentals vs someone with one rental property, all else being held constant.

I would think they'd be more likely to scrutinize the person with 9 rentals not taking QBID if they're throwing off a net tax loss. Especially if that person has other QBI with net taxable income.
 

#7
jon  
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Look at a couple of the other topics. If the rental qualifies as "a trade or business" take the 199A. If you do not have the 250 hours supposedly who cares if you meet the above qualifications. I have let three go without the attachment, but taking the deduction. I hope that assessment is correct!!!
 

#8
Noobie  
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Is the person electing to combine the 9 rentals as an enterprise? Do they meet the 250 hours for the enterprise?
 

#9
Jake  
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On a client's Schwab Tax Reporting Statement there was an amount on line 5, Section 199A Dividends $372. This was from W.P. Carey Stock, I found that is the part of dividends eligible for the 20% qualified business income deduction. Clients is retired and owns a rental double. I don't see how that would qualify. If it did wouldn't the profit then be subject to FICA tax? But of course $371 is less than $400 so that would not be an issue. But in Ohio we have city tax on earned income, so maybe it would be taxed there. This is one sleeping dog I am going to let lie. Anyone else wish we had never heard of tax reform?
 

#10
cpalake  
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If a rental is a trade or business maybe the IRS will contend it is subject to SE tax.
 

#11
Smktax  
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From Code §1402:

The term “net earnings from self-employment” means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed * * *; except that in computing such gross income and deductions * * * there shall be excluded rentals from real estate
 

#12
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cpalake wrote:If a rental is a trade or business maybe the IRS will contend it is subject to SE tax.


Not subject to SE unless substantial hotel-like services are provided to tenants/guests/etc, or the rental is held by a dealer in the ordinary course of his/her trade or business of being a dealer.

Treas Reg §1.1402(a)-4(c):

Rentals from living quarters

(1)No services rendered for occupants

Payments for the use or occupancy of entire private residences or living quarters in duplex or multiple-housing units are generally rentals from real estate. Except in the case of real-estate dealers, such payments are excluded in determining net earnings from self-employment even though such payments are in part attributable to personal property furnished under the lease.

(2)Services rendered for occupants

Payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or payments for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only. The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies, the collection of trash, and so forth, are not considered as services rendered to the occupant.

(3)Example

The application of this paragraph may be illustrated by the following example:

Example. A, an individual, owns a building containing four apartments. During the taxable year, he receives $1,400 from apartments numbered 1 and 2, which are rented without services rendered to the occupants, and $3,600 from apartments numbered 3 and 4, which are rented with services rendered to the occupants. His fixed expenses for the four apartments aggregate $1,200 during the taxable year. In addition, he has $500 of expenses attributable to the services rendered to the occupants of apartments 3 and 4. In determining his net earnings from self-employment, A includes the $3,600 received from apartments 3 and 4, and the expenses of $1,100 ($500 plus one-half of $1,200) attributable thereto. The rentals and expenses attributable to apartments 1 and 2 are excluded. Therefore, A has $2,500 of net earnings from self-employment for the taxable year from the building.
 

#13
Bob A  
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So if we have a single residential rental, but not 199A, do we still need to 1099 the cleaning person (over $600)?
 

#14
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If the rental rises to the level of a trade or business, and the cleaning person was paid the $600 in cash or check, and not credit card, debit card, or third party payment platform (PayPal, Venmo, etc), then yes.
 

#15
Bob A  
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Thanks, Man
 


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