Finally, the IRS has introduced rules related to the Qualified Business Income (QBI) deduction under IRC Section 199A for taxpayers with rental real estate. Section 199A was introduced as part of the Tax Cut and Jobs Act (TCJA) in 2017.
As a refresher, the QBI deduction provides an offset to taxable income based on earnings from business operations for non-corporate taxpayers. While many industries and business types were specifically addressed by law or regulation, no mention was specifically made of what rental real estate income would qualify as part of the QBI deduction calculation. Or whether it would qualify at all. While there were several court cases, clear guidance was still lacking.
On September 24, 2019 the IRS provided clarity in this area by issuing Rev. Proc. 2019-38. For a taxpayer following the finalized safe harbor rules, interests in rental real estate will be treated as a trade or business for purposes of the QBI deduction under IRC Section 199A. These rules were first proposed by the IRS on January 18, 2019 in Notice 2019-07.
A few items regarding the safe harbor rules:
Most importantly, there are no changes in how you would depreciate your rental property in Sage Fixed Assets – Depreciation. As always, contact a tax professional to discuss your particular situation.