20% deduction? (by steph [KS]) Apr 13, 2019 6:57 AM|
20% deduction? (by plenty [MO]) Apr 13, 2019 7:38 AM
20% deduction? (by Busy [WI]) Apr 13, 2019 8:26 AM
20% deduction? (by David [NC]) Apr 13, 2019 8:32 AM
20% deduction? (by WMH [NC]) Apr 13, 2019 8:48 AM
20% deduction? (by Steph [KS]) Apr 13, 2019 9:19 AM
20% deduction? (by Martin [CO]) Apr 13, 2019 10:27 AM
20% deduction? (by myob [GA]) Apr 13, 2019 11:38 AM
20% deduction? (by NE [PA]) Apr 13, 2019 11:46 AM
20% deduction? (by John... [MI]) Apr 13, 2019 2:12 PM
20% deduction? (by Steph [KS]) Apr 13, 2019 2:31 PM
20% deduction? (by Steph [KS]) Apr 13, 2019 2:56 PM
20% deduction? (by myob [GA]) Apr 14, 2019 5:29 AM
20% deduction? (by plenty [MO]) Apr 14, 2019 5:42 AM
20% deduction? (by 6x6 [TN]) Apr 14, 2019 8:09 AM
20% deduction? (by myob [GA]) Apr 14, 2019 8:21 AM
20% deduction? (by WMH [NC]) Apr 14, 2019 8:43 AM
20% deduction? (by 6x6 [TN]) Apr 14, 2019 8:44 AM
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20% deduction? (by steph [KS]) Posted on: Apr 13, 2019 6:57 AM
I need some clarification and any supporting documentation would be so helpful!
I am told that the 20% does not apply to me because I am not considered a self rental.
I was told that if the income is subject to self employment tax it would be considered, and I would get the 20%.
I was told that rentals are completely passive, unless it involves self employment .
My tax preparer feels that in 4 years it will be a mess to all those that wrongly took the deduction
any thoughts, documentation would be so welcomed
Please help-thank you
(I manage all the properties)
20% deduction? (by plenty [MO]) Posted on: Apr 13, 2019 7:38 AM
How many properties do u own? Ps seems you may need a new tax person as i dont hear any of that. --99.203.xx.xxx
20% deduction? (by Busy [WI]) Posted on: Apr 13, 2019 8:26 AM
I think your tax preparer is wrong. The first year I ever had rentals, I had only one. My husband was nervous about taxes so asked me to find a CPA. That very first year, with just one rental, I qualified as a Real Estate Professional. That designation takes the rentals out of passive investing, if I recall.
I suggest you look for a tax prepare who specializes in Real Estate Tax. You might find such a person through you local apartmet/ landlord association. Oh, and keep contemporaneous notes of all of your rental activities. --70.92.xxx.xxx
20% deduction? (by David [NC]) Posted on: Apr 13, 2019 8:32 AM
Do you actively manage the property or do you pay a property management co? --174.193.xxx.xx
20% deduction? (by WMH [NC]) Posted on: Apr 13, 2019 8:48 AM
You need a CPA who knows real estate. They are hard to find. I called around and asked, "Do you have any other clients who invest in Real Estate?" and found no one near me. Our CPA is out in Ohio, I think. All they do is real estate. --50.82.xxx.xx
20% deduction? (by Steph [KS]) Posted on: Apr 13, 2019 9:19 AM
David I manage all the properties
I am listed on my previous tax return as rental manager --168.149.xxx.xxx
20% deduction? (by Martin [CO]) Posted on: Apr 13, 2019 10:27 AM
See a thread that I started a few days ago titled "QBI 250 hours" and a few others. First, your tax preparer is completely wrong as to the definition of a qualified business. It has nothing to do with whether you are self-employed or not. I agree with the others here that you need to find a tax-preparer/CPA who has RE experience. If you preparer is telling you that THIS deduction is based on being self-employed, and that all definitions of passive and active are based on that, I am really concerned about what was left out in other parts of your taxes as well. You really may be getting ripped off. Not just in the QBI 20%, but also in the Schedule E.
There are lots of confusing things about this new deduction. In fact, the definition of a business or active participant or whatever seems to actually be different in for different parts of the tax code. IOW, the fact that you are an active participant for your Schedule E deductions is completely independent of the definition of a qualified business for this new 20% deduction.
There is a Safe Harbor described for this 20% deduction. Safe Harbor means that the bar has been set so high, that if you meet these qualifications, the IRS promises it will not question whether you can take the deduction or not. If you do NOT meet the Safe Harbor qualifications, you MAY still qualify for the deduction, but the IRS reserves the right challenge you in an audit. On the FAQ page, it specifically says:
"known as the section 199A deduction, that may be available to individuals, including many owners of sole proprietorships, partnerships and S corporations. Some trusts and estates may also be able to take the deduction. This deduction, created by the 2017 Tax Cuts and Jobs Act, allows non-corporate taxpayers to deduct up to 20 percent of their QBI". So clearly this is intended for individuals, and not just self-employeds, to take advantage of the deduction. So your tax preparer is all wet already. This deduction is specifically for landlords who directly own and manage their property (or have a "direct-like" arrangement, such as an S-Corp or LLC).
The only 3 rules are these:
1 - You must put in 250 hours of work per year on the entity. Not on each individual property, but on the entity. So, if you have a single company that owns the homes, or if you own them all directly, you must spend 250 hours in the year on them. If you were to own each through a different company, then it gets tricky, as you need to spend 250 on each entity. This is where you would need a lawyer/CPA to help you set up your properties in such a way as to be a single entity for these purposes. But if you spend 250 hours total - and this can be hours that you spend, your property manager spends, or that individuals who you hire spend repairing, maintaining, etc - then you meet the Safe Harbor limit.
2 - You cannot have the lease set up as what they call a triple-net lease. Apparently this is something where the tenant pays all the bills, pays the taxes and insurance, takes care of all the maintenance and repairs. This would take away the "Active" designation, because the tenant is doing all the work and it simply becomes a straight investment.
3 - You cannot have used the property as a residence for any portion of the year.
That's it. If you meet all of these, you meet the Safe Harbor, and the IRS will not challenge your designation as a Qualified Business. This year, they will not even ask for any documentation or proof that you spent the 250 hours you are claiming. In future years, you must have a contemporaneous record of your hours as backup documentation that you can show in the event of an audit. That means you must document as the year goes along - instead of just generating it all 3 days before the audit - so start documenting 2019 hours now!
Even if you do not meet the 250 hours, you may still have a business vs an investment - the IRS has not specified an exact line at which it will say it's a business vs an investment. That is where you will need to feel confident that you are actively involved in a rental business, and don't just rent it out and wait for the money to come in. This is likely what your tax preparer is referring to, and does not want to be held liable in case of an audit. But don't let that scare you. Keep track of your hours. keep track of any hours that somebody else (other than the tenant) works at the house.
My guess is that the closer to 250 hours you are, the better your chance to survive an audit, or Tax Court if you choose to appeal the audit ruling. Just remember that the IRS just says that it has to be a business vs an investment. As long as you feel like your oversight is a job - compared to just investing the money in a REIT and seeing where the market takes it - then you are trending toward a business.
Good luck with it all. I would really consider a different tax preparer. This one is clearly not willing to investigate options or push for getting you the most money back. You need someone who is confident in the Real Estate domain, and will fight for you. --75.166.xxx.xxx
20% deduction? (by myob [GA]) Posted on: Apr 13, 2019 11:38 AM
I would like to add that the form for tracking the 250 hrs is simple to fill out--- go to the post about 250 hrs and i mentioned a company you can get a free form from.
Maybe Jeffery can put one on this site?
Hint on this-- you don't have to keep it every day-- just fill in once a week. Feb I had 177 hrs, March 226 so far in Apr about 65. --99.103.xxx.xxx
20% deduction? (by NE [PA]) Posted on: Apr 13, 2019 11:46 AM
Myob, I have to ask. Why are you even tracking them? With 60+ houses, I would think there's no argument to your 250 hours a year. --50.107.xxx.xx
20% deduction? (by John... [MI]) Posted on: Apr 13, 2019 2:12 PM
myob: So you're basically working 8 hours a day 7 days a week on your rentals??
I'm sorry, but that sounds horrible. :(
20% deduction? (by Steph [KS]) Posted on: Apr 13, 2019 2:31 PM
After reading all your wonderful comments I did some research myself… Well a lot of research and found publication 535 business expenses, qualified business income deduction from the IRS, 2018 form 1040 line 9 qualified business income deduction, facts about the qualified business income deduction IRS, executive summary from notice 2019-07 199A safe harbor for rental real estate. Lots of good info.
I ended up getting it!!!
Thank you so very much! Thank you for your comments!
I am starting my log of hours
Thank you to all of you.....you guys are AMAZING! --168.149.xxx.xxx
20% deduction? (by Steph [KS]) Posted on: Apr 13, 2019 2:56 PM
Is the qualified business income deduction the same as the safe harbor? If they are not the same how are they different and how do you claim both of them? --168.149.xxx.xxx
20% deduction? (by myob [GA]) Posted on: Apr 14, 2019 5:29 AM
John it does sound horrible-- just not to me.
I don't know when I'll have time to plan these 6 cruises I have coming up. Gonna be in HI and Vancouver for 19 days come May. Forgot I had Oasis OTS in Feb???
Anyway truth be known I go to the office every day I'm in town. Doing Tax prep for IRS-- new year and also property taxes for this year. My son shares our offices and for him to have time I usually work weekends so he can do six flags, Disney, great Wolfe adventure and vacations while we're in town. I go to the gym 2 hrs a day for workout and Racquetball and meet up with MMan daily.
I keep asking myself when are you going to stop Don? I feel like if I stop I'll die and wither.
NE I'm tracking them as a favor to my accountant. She use's us to help others in RE-- most of those she helps are customers we brought here-- so We feel like we're helping them. --99.103.xxx.xxx
20% deduction? (by plenty [MO]) Posted on: Apr 14, 2019 5:42 AM
NE that's exactly what my tax man said and i have 16 properties. --99.203.xx.xxx
20% deduction? (by 6x6 [TN]) Posted on: Apr 14, 2019 8:09 AM
myob, I went to the site you suggested and can not seem to find any free forms or spreadsheets. I even went to the search bar and typed in different things and could not find. Thank you for your help. BTW, it is nice of you to help out your accountant and other LL's. --73.120.xx.xxx
20% deduction? (by myob [GA]) Posted on: Apr 14, 2019 8:21 AM
Ok lets try this. do the 3W's first followed by bakertilly. com / sample log
then select download sample log. it won't allow me to send the hole web address. --99.103.xxx.xxx
20% deduction? (by WMH [NC]) Posted on: Apr 14, 2019 8:43 AM
DH is used to tracking his hours from his old salesman days, so he has contemporaneous records going back years. He uses a (to me) very confusing Excel spreadsheet. I don't track my time as well because I am not often doing concrete, "there's that's finished" stuff. But I do track all appointments, all leases, have all my emails and tenant records going back years. So we are good, we don't have to alter our methods for the new laws. Whew. --50.82.xxx.xx
20% deduction? (by 6x6 [TN]) Posted on: Apr 14, 2019 8:44 AM
myob, That worked. I got it. Thank you again. --73.120.xx.xxx
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