Rental LLC 199A

[Avs19]

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?

[George4Tacks]

Read the requirements more carefully. 250 is JUST a safe harbor. Who does all the work to operate and maintain these rentals?

[sjrcpa]

Use of the safe harbor is optional.

[Avs19]

My client does all the work but did not put in 250 hours on any of the properties

[sjrcpa]

So he doesn't meet the harbor. So what.

There are other ways to be a trade or business.

[Avs19]

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?

[abctax55]

Real Estate Professional v §199A are different critters.

[Avs19]

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!

[sjrcpa]

Are you sure they are real estate professionals? If they don't have 250 hours I wonder.

[Avs19]

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.

[Avs19]

I guess the question is whether a real estate professional qualifies for QBI having not met the 250 hours per property?

[qbteachmt]

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

https://www.journalofaccountancy.com/news/2019/sep/rental-real-estate-safe-harbor-qbi-deduction-2019...

[BobKamman]

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/ 

[qbteachmt]

"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.

[Avs19]

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? 

[qbteachmt · Accepted solution]

"can be aggregated to qualify for the deduction?"

Are you clicking the links that are being provided in the replies, to help you learn what applies directly? The references are important and useful. Even IRS resources can be useful.