Rental Activities - Qualified Trade or Business

[sharpcougar]

Can someone educate me on whether I need to check the box on "Is this activity a qualified trade or business" on schedule E for a tax payer that has 2 rental houses? She has a full time job but she also manages these 2 properties on her own. 

[TaxGuyBill · Accepted solution]

There is no clear-cut answer and depends on the facts-and-circumstances.  Tax professionals who have spent DAYS researching court cases, rulings, etc. still may disagree with each other if it rises to the level of a "trade or business" or not.

The IRS has a "Safe Harbor" for this.  PART of that Safe Harbor is if there is 250 hours a year spent on the rental activity.  The 250 hours includes any time the taxpayer spends on it, and well has anybody that they hire to work on the property (for example, repairs, improvements, bookkeeper, etc.).

If a person qualifies for the Safe Harbor, the IRS would not question the fact if it rises to the level of a "trade or business".

A rental activity certainly can qualify as a "trade or business" if less than 250 hours are performed.  However, I personally use the 250 hours as a guideline.  For example, if 200 hours were performed, it very well could qualify.  If only 50 hours were performed, it seems very unlikely to me that it would qualify.  But again, there is no clear-cut answer and it depends on the facts-and-circumstances.