8582 / Are any businesses excluded from using the Section 199A rental real estate safe harbor?
When satisfying the “hours of rental real estate services” criteria, only certain activities are counted toward the 250-hour threshold that must be met in order to qualify to use the safe harbor rule. Activities such as rent collection, advertising the rental, property maintenance, negotiating leases and managing the real property generally count toward the threshold. However, financing activities and the construction of capital improvements to the property, as well as hours spent traveling to and from the real property, are excluded (in other words, the taxpayer’s activities as an “investor” are not counted).
If any property within the rental real estate enterprise is classified as a specified service trade or business, the safe harbor is unavailable for the entire business. Further, if the taxpayer rents the real property to a trade or business that is operated either by the taxpayer or an entity under common control, the safe harbor is unavailable.1
1. Rev. Proc. 2019-38.