IRS Finalizes 199A Real Estate Safe Harbor

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by John Anthony Castro, J.D., LL.M.

Background

The IRS made final its revenue procedure explaining when rental real estate rises to the level of a trade or business under the new Section 199A, Qualified Business Income Deduction.

On September 24, the IRS released Rev. Proc. 2019-38 (to view, click here), which allows mixed-use property to be treated as a single real estate enterprise under the 20% passthrough deduction added to the code by the Tax Cuts and Jobs Act.

The deduction is available for qualified business income, but because the IRS and Treasury relied on section 162 as the standard for what qualifies as a trade or business, some taxpayers weren’t sure if their rental activity qualified. This procedures confirms the position taken by Castro & Co. that it is, in fact, covered.

In the proposed safe harbor, the IRS and Treasury don’t allow property leased on a triple-net basis to qualify for the safe harbor. The government maintained that position in the final revenue procedure.

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About the Author

John Anthony Castro, J.D., LL.M., is the Managing Partner of Castro & Co., the author of International Taxation in Plain English as well as International Estate Planning in Plain English, an esteemed graduate of Georgetown University Law Center in Washington DC, an OPM Fellow at Harvard Business School, and an internationally recognized tax attorney with offices in New York, Los Angeles, Miami, Chicago, Dallas, and Washington DC.

To provide feedback on this article or suggest an idea for a future article, please contact Tiffany Michelle Hunt, J.D., LL.M., Director of Tax Planning at Castro & Co., at T.Hunt@CastroAndCo.com.

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