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IRS Finalizes Qualified Business Income (QBI) Safe Harbor for Rental Real Estate

The final safe harbor rule contains only a few minor modifications from the proposed version found in Notice 2019-7. For example, under the final version, an interest in mixed-use property may be treated as a single rental real estate enterprise or may be bifurcated into separate residential and commercial interests. In addition, recordkeeping requirements are eased if rental services are performed by employees or independent contractors.

The final version also keeps the IRS’s position that real estate rented under a triple net lease does not qualify for safe harbor protection. The safe harbor applies to tax years ending after 2017; however, taxpayers may rely on Notice 2019-7 for 2018. The contemporaneous records requirement does not apply to tax years beginning prior to January 1, 2020 per Revenue Procedure 2019-38.

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