Category: Timely Opportunities
Due to new laws and regulations, there are additional requirements to obtain most favorable tax treatment for rental property.
Since the passage of the 2017 Tax Act, a rental property must rise to the level of being a trade or a business to be eligible for the tax benefit of Qualified Business Income (QBI). The QBI rules allow a deduction from taxable income of up to 20% of the net income of the rental property. Because neither the IRS Code nor Regulations define a trade or a business, the IRS has provided for two methods to help determine the rental property’s trade or business status. These methods are the Safe Harbor Method and the Alternative Facts and Circumstances Method. Although the requirements to meet trade or business status under the Safe Harbor Method are stringent and may be difficult to meet, the IRS does not specifically mention filing Forms 1099-NEC. The form and function of the Alternative Facts and Circumstances Method are important to demonstrate that the rental is being operated as a trade or business. This includes filing all tax information forms such as Forms 1099-NEC.