Congress enacted IRC Section 199A to provide a deduction to non-corporate taxpayers of up to 20 percent of the taxpayer’s qualified business income from each of the taxpayer’s qualified trades or businesses, including those operated through a partnership, S corporation, or sole proprietorship, as well as a deduction of up to 20 percent of aggregate real estate investment trust (REIT) dividends and qualified publicly traded partnership income.
IRC Section 199A(d) defines a qualified trade or business as any trade or business other than a specified service trade or business (SSTB) or the trade or business of performing services as an employee. Section 1.199A-1(b)(14) defines trade or business, in relevant part, as a trade or business under IRC Section 162 other than the trade or business of performing services as an employee.
In Notice 2019-07, the IRS provided taxpayers a safe harbor for rental real estate to qualify as a “trade or business” for purposes of Section 199A. The safe harbor requires the maintenance of books and records, the performance of at least 250 hours per year of rental services, and the maintaining of written records regarding the services.
The safe harbor will not apply to property leased under a ‘triple-net’ lease.