.03 Safe harbor. Solely for the purposes of section 199A, a rental real estate enterprise will be treated as a trade or business if the following requirements are satisfied during the taxable year with respect to the rental real estate enterprise:• (A) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;• (B) For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental enterprise. For taxable years beginning after December 31, 2022, in any three of the five consecutive taxable years that end with the taxable year (or in each year for an enterprise held for less than five years), 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental real estate enterprise; and• (C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019..04Rental services. Rental services for purpose of this revenue procedure include: (i) advertising to rent or lease the real estate; (ii) negotiating and executing leases; (iii) verifying information contained in prospective tenant applications; (iv) collection of rent; (v) daily operation, maintenance, and repair of the property; (vi) management of the real estate; (vii) purchase of materials; and (viii) supervision of employees and independent contractors. Rental services may be performed by owners or by employees, agents, and/or independent contractors of the owners. The term rental services does not include financial or investment management activities, such as arranging financing; procuring property; studying and reviewing financial statements or reports on operations; planning, managing, or constructing long-term capital improvements; or hours spent traveling to and from the real estate.
I read this as 250 hours of you, your employee’s or even contractors’ time, which is illogical, but as this is the government … Others, much smarter than I interpret it similarly
To qualify for the safe harbor, a rental operation must meet three requirements. In general, it must (1) maintain separate books and records for each rental enterprise, (2) involve the performance of at least 250 hours of rental real estate services each year (which, according to Treasury officials announcing the safe harbor, may be performed by employees or contractors other than the taxpayer), and (3) maintain contemporaneous records regarding the rental real estate services performed. Certain rental real estate arrangements are excluded from the safe harbor, such as real estate rented or leased under a triple net lease, as specifically defined in the proposed revenue procedure.
Under the proposed safe harbor, a “rental real estate enterprise” would be treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise.The IRS says this includes services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, rent collection, payment of expenses, provision of services to tenants, and efforts to rent the property. However, hours spent in the owner’s capacity as an investor, such as arranging financing, procuring property, reviewing financial statements or reports on operations, and traveling to and from the real estate will not be considered hours of service with respect to the enterprise.
