IRS Finalizes 199A Real Estate Safe Harbor


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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