Real Property Rental Safe Harbor under Code §199A

Code §199A allows taxpayers up to a 20% income tax deduction for business income earned through a sole proprietorship or pass-through entity. There are numerous requirements to meet, and one of these is that the business constitute a trade or business under Code §162.

Unfortunately, for rental real estate activities it is not often clear whether the activity constitutes a trade or business. To assist taxpayers, the IRS has published Notice 2019-07 which provides a safe harbor to obtain trade or business status for rental real estate activities. Note that if a taxpayer does not meet the requirements, they can still claim trade or business status – they just do not have the benefit of automatic IRS approval of that conclusion via the safe harbor.

I have summarized in this link a mind map summary of the safe harbor requirements, so those with an interest can get quickly up to speed on them. It is possible that these requirements may be tinkered with by the IRS when it issues a final Revenue Procedure, so readers should check whether such a procedure has been issued before relying on the Notice. Of course this is a summary only – check the Notice provisions directly instead of relying on this summary alone.

Notice 2019-07 – LINK TO MAP SUMMARY