Welcome back to Ned’s Blog Spot, where you can find all your tax tips and tricks. Our tax deadline is quickly approaching, and we want to make sure we provide you with all the information we can, for your filing to be as quick and painless as possible. Below you’ll find a few quick tidbits about the upcoming tax season, as it relates to rental income.
If you earn income from rental properties, you may be eligible to claim a 20% qualified business income (QBI) deduction. One of the ways you can do that is for your rental activity to rise to a level equivalent to that of a trade or business. Another way, is to meet an IRS safe harbor. The safe harbor states that “at least 250 hours must be devoted to the rental activity by the taxpayer”.
The hours allowed under the safe harbor are as follows: time spent on tenant services, repairs, property management, advertising, collecting rents, negotiating leases, and supervising workers counts. And of course, with allowances, come exclusions. Hours you put in for driving to and from property, arranging financing and construction long-term capital improvements are NOT included. Additionally, the safe harbor does NOT apply to property leased under a triple net lease or if the owner’s personal use exceeds the greater of 14 days or 10% of the days rented. If you own multiple rental properties, you can treat each one separately, or group similar rental activities into categories, such as commercial vs residential.
When you come in, to file for the safe harbor, please make sure you have detailed, adequate records. There is a strict recordkeeping requirement, as it pertains to the safe harbor. You will be required to attach an annual statement to your returns. The details of this statement are outlined in Rev. Proc. 2019-38 (https://www.irs.gov/pub/irs-drop/rp-19-38.pdf). Synchronous records must detail hours, dates and descriptions of services and who performed them. If the services are contracted out or performed by employees, the taxpayers must keep logs of the work done by them, as well as proof of payment.
We hope you find this information helpful as you begin to prepare for the upcoming tax season. If you have any questions, the information for our downtown office will be listed below and don’t forget to check back for more!
Ned Jackson Downtown Office
Address
255 N Liberty Street
Jacksonville, FL 32202
Phone
(904) 356-0349
info@nedjacksontax.com
