Just wondering what other people have been doing as far as the new QBI deduction. I am mostly asking those with just one or two properties, who do not have 250 hours per year. The question is at the bottom, for those who don't want to read the whole thing.

To recap --

The IRS rule says that you must have a bona fide business. To quote the actual IRS reg, "Unfortunately, determining what constitutes a business for IRC Section 199A purposes is far from clear." The IRS spelled out a "Safe Harbor" rule, which means that they set a bar really, really high. As long as you are over this bar (meaning there is absolutely no doubt that you are in a business vs an investment), the IRS promises it will never question you as to whether you are a business or not. Their threshold is that you spend 250 hours or more (you, your PM, or contractors) on the business during the year. However, they are NOT saying that if you are under that threshold you definitely do not qualify. They specifically do NOT set an absolute bar. The problem is, you won't know for sure if you qualify as a business unless and until the IRS challenges you, you defy them and they take you to Tax Court. Only then will a judge rule as to whether yours is a business or an investment. Also, because this rule came in partway through 2018, you do not need to document your 2018 hours of work. But, beginning with 2019, you will need to document throughout the year hours spent on your business. While anyone could just claim the 250 hours for 2018 because it doesn't need to be documented, that isn't the way I do things. Plus, next year I would just be in the same conundrum. I'd rather figure it out now. I feel like the IRS is asking, "So, are you feeling lucky, punk?"

In my case, the deduction would have been about $1800. I likely had about 100 hours or less last year. Some years it is much more. 100 is about the minimum. Last year I had zero repairs on the property. I did background check one tenant (a new roommate). I am also on the HOA board (I do not live in the community), so that gives me an hour or two each month. To me, I have a business. I do all the work. I am on the HOA board. I don't think I should be punished tax-wise just because my property did NOT need any repairs in a given year. When I did my taxes (I use TaxAct), it automatically took my "active participant" status from other tax forms and translated that to "I have a business" for the QBI. It never asked me if I had 250 hours, or anything like that. It just took the deduction. I had already done my taxes and was ready to turn them in. Then put them aside (because I owed a couple hundred bucks). Over the past few weeks, I've read on here and online about this 250 hour threshold, so I am rethinking whether I should take this deduction or not. I don't think it would be illegal - it would not be considered fraudulent as I genuinely believe I have a business.But, they could nail me for interest on anything I don't pay now. I am debating between 1) taking the deduction and see what the IRS does, 2) giving up, and not taking the deduction (would cost me about $400 - $500 out of pocket), or 3) filing for an extension. That would give me another 6 months to think about it / get some consult help. My concern with that is, I would pay some CPA a couple hundred, and all she/he would do is tell me the tax law that I already know, and tell me it is my choice. So I give up most of what I might save to be in the same place I already am. I have no experience with CPAs/taxes. Anybody think a CPA would actually tell me what I should do?

My question is, for those that own 1 or 2 properties and have less than 250 hours, did you or will you take the QBI deduction and dare the IRS to question you, or are you just giving up and not taking the deduction?

Thanks

Martin (from Colorado. We are currently under a blizzard warning).

I only have 1 rental and have a loss on it this year so it would not have helped me anyway. I am not sure if I could claim the deduction or not. It is a little confusing to me. I do my own repairs and supervise anything hired. I don't think I would have a problem counting 250 hrs. I wounder if education time counts, maybe someone can answer that as well.

I can't say for sure about education/training. That's a really good question. Here are the few lists of things that they have specified:

Activities that are specifically included in “rental services” include:

Advertising to rent or lease the real estate

Negotiating and executing leases

Verifying information contained in prospective tenant applications

Collection of rent

Daily operation, maintenance, and repair of the property

Management of the real estate

Purchase of materials

Supervision of employees and independent contractors

Meanwhile, activities that are explicitly excluded from rental service include:

Financial or investment management activities, such as arranging financing

Procuring property

Studying and reviewing financial statements or reports on operations

Planning, managing, or constructing long-term capital improvements

Hours spent traveling to and from the real estate

I have not boned up on the specifics of what was laid out by the IRS in 2018 but I would say it is probably guided by the real estate professional designation. So is this your primary job, or are you a W2 earner? Is you RE in a LLC where you are not the managing partner w/ decision holding power? Etc.. Martin how would being on the HOA board be considered RE, other than your property is in the HOA? I think you are smart not to push and have the IRS push back.

6x6 when I started out in RE I took all kinds of classes and brought products, like books etc. -- Before I had my first property. That same year I got my first rental. I deducted all my expense ice including the education and books. Anything I purchased or did PRIOR to buying that first house was denied. Anything purchased after was allowed.

Martin,

Sid: I posted it in another thread the other day. I'll see if I can dig it up...

Here it is:

irs.gov/pub/irs-drop/n-19-07.pdf

Specifically, see ".03 Safe harbor (C)" -- which talks about record keeping and then ends with this:

"The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019."

- John...

I've been keeping the log since Feb. My acct said she isn't sending it in with taxes but has to have it documented.

Martin, myob, Robin and others. Thank you.

6x6 I tried to send the site address to you but it's blocking me.

Plenty -- I did but she also asked me to track it anyway. This is all new to everyone and I think she wants to be sure at least a few months are done. Feb I had 177 hrs and Mar was 226. She also said she doesn't have to send it (form) but they must be available if there's an inquiry.

The way I feel - my CPA has been there for me since my second year in business and when she asks for something I help her-- we have that type relationship. We work together.

She also asks me to help some of her clients in RE who need guidance so I do that also.

How do you get the spreadsheet? I went to the balertilly website.