Does my Rental Property Qualify for the New Section 199A Deduction Under Tax Reform?

How do you know if your rental property qualifies for the 20 percent  tax deduction under new tax code Section 199A? Just what we need–something else to learn along with all of the other tax code changes this year.


Well, maybe not.

There is a piece of good news: we won’t be required to learn this tax code because everything we need to know about it is in the new regulations proposed by the IRS.

Existing rules govern.

Does the IRS deem your rental property a business? If so, then yes, your property qualifies for the deduction.

It might sound strange to think of your rental property as a business, especially if you now report the rental on Schedule E of your 1040.

If your rental property is carefully selected, maintained indoors and out, and managed efficiently, it can provide residual income, capital gains, and tax advantages, including the 199A deduction in many cases.

 

How Does a Rental Property Qualify as a Business?

If the rental property you own earns a profit, you own a business. Whether you manage it or you hire a company or individual to manage it, it still qualifies for the 199A deduction.

And the news gets better….

Schedule E rentals also qualify for even sweeter tax benefits.

There are two ways the IRS treats rental activity as a business for the Section 199A deduction:

1)   Tax-favored Section 1231 treatment

2)   Businesses use an office in your home (and if it’s a principle office, and you have more than one rental property, you qualify for related business deductions for travel to and from your properties.

Your rental property will qualify for the 20 percent Section 199A  deduction if you rent it to a commonly controlled trade or business, even if your rental property does not qualify as a Section 162 trade or business.

All of this can be confusing. Would you like help discerning whether your rental properties qualify for the new 20 percent Section 199A tax deduction? If so, please contact us.