I recently took on a new client with husband/wife LLC partnerships. They own 5 residential rental properties, all under different LLCs. 5 1065's. The prior accountant took the 199A deduction for each on the 1040. The 199A safe harbor rules essentially states that one would need to perform 250 or more hours of rental services to qualify. They do not spend 250 or more hours on any of the properties. Did the prior accountant make a mistake by taking the 199A or am I missing something?
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"can be aggregated to qualify for the deduction?"
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Read the requirements more carefully. 250 is JUST a safe harbor. Who does all the work to operate and maintain these rentals?
I guess my thinking was that you had to contribute more than 250 hours to take the 199A on rental properties. I believe they would fall under a trade or business but does that mean they automatically get the deduction?
My client meets the real estate professional qualification. What confuses me is the conflicting information I've been reading about the 250 hour rule. Are real estate professionals exempt from that rule?
Thanks for your help!
The primary taxpayer manages 8 properties. That's all he does. Pretty sure he can attest for the 750 material participation rules but probably not the 250 per property.
I guess the question is whether a real estate professional qualifies for QBI having not met the 250 hours per property?
The term "safe harbor" is used to describe when something is a lower bar to reach, but that isn't the requirement. That's the point of offering a safe harbor qualification.
"If an enterprise fails to satisfy the requirements of this safe harbor, it may be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in § 1.199A-1(b)(14)."
From: https://www.irs.gov/pub/irs-drop/rp-19-38.pdf
Regulations within Section 199A allow the aggregation of multiple trades and businesses. This lets you treat an aggregated group as a single business or trade when considering your Section 199A deduction.
See discussion at
https://numbersquad.com/how-to-handle-multiple-rental-activities-and-the-199a-deductible/
"allow the aggregation of multiple trades and businesses."
In other words, if they provided evidence of 250 hours or more, you would not also need to gather all the info to prove they qualify. Safe Harbor = slam dunk qualification. Or, do more work to show it still qualifies.
This helps. So, even though there are five separate LLC's, that in my opinion constitute a trade or business, can be aggregated to qualify for the deduction?
"can be aggregated to qualify for the deduction?"
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