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Rental Safe Harbor Rule:Notice 2019-07, Section 199A

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The 199A rules for the 20% deduction on rental real estate activities was ambiguous, but Notice 2019-07 now provides some ray of light in the form of a key safe harbor rule.

How it works: A rental activity (including multiple rental activities combined into a single enterprise) is treated as trade or business if the taxpayer spends 250 hours of more on rental services. To qualify for this 250-hour safe-harbor, the taxpayer must also meet the following requirements.

  • The taxpayer maintains separate books and records for each rental activity (or the combined enterprise); and
  • The taxpayer maintains contemporaneous records, including time reports and similar documents, concerning hours of services performed, a description of all services performed, the dates on which services are performed [Read More]
July 29th, 2019|Articles|

Final Pass-Through Deduction Rules Are A Welcome Relief For Rental Real Estate Activities

On Friday, January 18, 2019, the Treasury Department issued final rules under IRC Section 199A. As part of this regulation package, Treasury also provided much-needed relief and clarity for rental real estate activities.

Background

IRS Section 199A is a tax incentive for pass-through entities and sole proprietorships. It effectively reduces the federal tax rate on income arising from certain activities by as much as 20%.  However, Section 199A only applies to an activity that is a “trade or business.” This is a term that is not clearly defined by the IRS (shocking, I know) and there is also vague guidance in case law. In general, the case law would suggest that many real estate activities might not qualify under this definition. Real estate owners, developers and investors thus faced uncertainty as to whether the incentives under 199A would apply to them.

The Safe Harbor [Read More]

June 26th, 2019|Articles|

Four Phases of the Real Estate Market

Real estate follows four definite phases: (1) Recovery; (2) Expansion; (3) Hypersupply; and (4) Recession. In 2008, the real estate market went through the period known as the Great Recession which lasted nearly four years. In 2012, we began the Recovery phase and made the long climb out of recession. The Recovery phase is the bottom of the barrel. Occupancy rates and rental rates are low due to tepid demand.

For the last several years, we have been going through the Expansion phase. During the Expansion phase, the market is on an upswing due to growing demand. In this phase, occupancy rates and rents are on the rise generally due to a strong economy and job growth.

Due to regulatory changes in the banking industry to prevent another recession and changes in the tax code to promote economic growth, the real estate market has been on a prolonged period of expansion. How long this [Read More]

June 25th, 2019|Articles|