Real Estate QBI Deduction - Rev Proc 2019-38 Safe Harbor

The Qualified Business Income (QBI) deduction under IRC Section 199A provides a 20% deduction on certain forms of qualified income.

Generally, rental real estate income is not eligible for this 20% deduction because rental real estate is treated as an investment activity and not a qualified trade or business.

However, your rental real estate activities could give rise to a qualified trade or business under certain circumstances. The IRS published Revenue Procedure 2019-38 which outlines more quantitative guidance on how to qualify as a trade or business.

A rental enterprise must meet the following four elements:

1. Maintain separate books & records
2. Perform at least 250 hours of rental services during the year
3. Keep logs, time sheets, and other contemporaneous records that document the hours spent on rental services
4. Attach a statement to the tax return stating the person or entity is relying on the safe harbor in Rev Proc 2019-38.

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