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QBI from Sch E

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26 minutes ago, DANRVAN said:

It works the other way Robert.  As the tax courts like to say tax deductions are granted by "legislative grace."

 

The IRS and Congress have given us information to make an informed decision.

Realistic possibility of success. Considering multiple experts have given an opinion, outlined their reasoning and I think it makes sense, we haven't taken a frivolous position.

One of the reasons tax courts exist is that not all choices are specifically outlined or addressed by IRS rules.

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It is my understanding from someone who spoke to the office of the counsel about the technical corrections that their position is that Section 162 has been around a long time, and there are plenty of court cases clarifying the law, so there was no need for clarification from the IRS.  HA!

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“IRS declined to provide any further guidance on when a rental qualifies nor any bright line test - trade or business is still the standard.  It specially says it will not reference 469 for 199A purposes.

HOWEVER, Notice 2019-07 will provide a SAFE HARBOR: Under the proposed safe harbor, a rental real estate enterprise may be treated as a trade or business for purposes of section 199A if at least 250 hours of services are performed each taxable year with respect to the enterprise. This includes services performed by owners, employees, and independent contractors and time spent on maintenance, repairs, collection of rent, payment of expenses, provision of services to tenants, and efforts to rent the property.

however a rental activity can still meet the trade or business test while not meeting the safe harbor.”

Anybody know where I can find notice 2019-07?

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Supposedly, it was released 2 hours ago. If you want to sign up www.360law.com has a copy available.

I will wait a few more hours until it's publicly available.

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I guess the tp that has 1 rental, making profit from it is out of luck unless he can prove he spent 250Hrs on it doing something. That's about 3/4 of an hour every day?

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SECTION 4. EFFECTIVE DATE AND IMMEDIATE RELIANCE The proposed revenue procedure is proposed to apply generally to taxpayers with taxable years ending after December 31, 2017. Until such time that the proposed revenue procedure is published in final form, taxpayers may use the safe harbor described in the proposed revenue procedure for purposes of determining when a rental real estate enterprise may be treated as a trade or business solely for purposes of section 199A.

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On 1/18/2019 at 3:15 PM, TAXMAN said:

I may have jumped the gun. It smells like in 2018 we will be ok, 2019 need the logs? I need some help here please.

Per Section 3, .03, (C) of the safe harbor:

The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.

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06 Procedural requirements for application of safe harbor. A taxpayer or RPE must include a statement attached to the return on which it claims the section 199A deduction or passes through section 199A information that the requirements in Section 3.03 of this revenue procedure have been satisfied. The statement must be signed by the taxpayer, or an authorized representative of an eligible taxpayer or RPE, which states: “Under penalties of perjury, I (we) declare that I (we) have examined the statement, and, to the best of my (our) knowledge and belief, the statement contains all the relevant facts relating to the revenue procedure, and such facts are true, correct, and complete.” The individual or individuals who sign must have personal knowledge of the facts and circumstances related to the statement.

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>>>>>>“IRS declined to provide any further guidance on when a rental qualifies nor any bright line test - trade or business is still the standard.  It specially says it will not reference 469 for 199A purposes.<<<<<<<

I personally have not found this statement yet. Doesn't mean it's not fact. Please provide a reference.

It appears it is much easier to determine if the RPE rises to a trade or business under section 162 than having a client provide the log hours. I have two  real estate rental partnerships, that have two 50/50 partners with a total of 24  properties that invest, maintain and control all aspects of the activity. There is a profit motive, and continuity which meets the requirements of a trade or business under section 162. While in this scenario the calculations for QBI are going to be involved, I am of the opinion they still qualify for the QBID. 

Any comments are welcome.

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Also, in my post above, the 250 hour requirement would be met by both partners. So, I will let the partners make the decision as to whether they want to take on the task of maintaining activity logs for TY 2019 and beyond. For TY 2018, the section 162 requirements will be used as I am sure neither one of these folks will have the activity logs.

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Hours of work is a bizarre method. As an example my sister in law didn't show up to a family event a few years ago and I asked my brother why. He commented that she was doing her father's tax return and I said that couldn't take very long. His response was that it was a 3-4 hour job that was now in week 3. My Bro and SIL were at one time CPAs.

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If I read the notice about the safe harbor right, the 250 hours are not necessarily provided by the partners and not necessarily documented by a log.  Part of the time counted towards this could be by contractors, and the time shown on the invoice they send you could be counted towards the 250 hours based on that invoice.  Did anyone else read it that way? 

I am just getting tired of the service requiring separate signature statements for everything - I thought when the taxpayer signed the tax return it was under penalty of perjury and applied to everything on the return. 

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22 minutes ago, Gail in Virginia said:

If I read the notice about the safe harbor right, the 250 hours are not necessarily provided by the partners and not necessarily documented by a log.  Part of the time counted towards this could be by contractors, and the time shown on the invoice they send you could be counted towards the 250 hours based on that invoice.  Did anyone else read it that way? 

I am just getting tired of the service requiring separate signature statements for everything - I thought when the taxpayer signed the tax return it was under penalty of perjury and applied to everything on the return. 

Gail, I agree. The paragraph below is taken from the revenue procedure and is fairly straight forward. So, if a rental property owner hires an HVAC contractor to replace the Heating/Cooling unit, those hours should be documented and apply toward the 250. Same with a roof replacement or lawn maintenance.

.04 Rental 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.
 

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