Professional Tax Research Solutions from the Founder of Kleinrock. tax and accounting research
Parker Tax Pro Library
Accounting News Tax Analysts professional tax research software Like us on Facebook Follow us on Twitter View our profile on LinkedIn Find us on Pinterest
federal tax research
CPA Client Letter Samples
Client Letters - 2017
Tax Research Articles Tax Research Parker's Tax Research Articles Accounting Research CPA Client Letters Tax Research Software Client Testimonials Tax Research Software Federal Tax Research tax research


Accounting Software for Accountants, CPA, Bookeepers, and Enrolled Agents

Sample Client Letter: Rental Real Estate Safe Harbor.

(Parker Tax Publishing January 2019)

Dear [client],

This letter is in response to your request for guidance about the availability of the 20 percent deduction for qualified business income (QBI deduction) with respect to a rental real estate activity.

If all the general requirements (which vary based on your level of taxable income) are met, the deduction can be claimed for a rental real estate activity - but only if the activity rises to the level of being a trade or business. An activity is generally considered to be a trade or business if it is regular, continuous, and considerable.

Because determining whether a rental real estate enterprise meets those criteria can be difficult, the IRS has provided a safe harbor under which such an enterprise will be treated as a trade or business for purposes of the QBI deduction if certain conditions are met. For this purpose, a rental real estate enterprise is defined as an interest in real property held for the production of rents and may consist of an interest in multiple properties. Commercial and residential real estate may not be part of the same enterprise.

Under the safe harbor, a rental real estate enterprise will be treated as a trade or business if the following requirements are satisfied during the tax year with respect to the rental real estate enterprise:

(1) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.

(2) 250 or more hours of rental services are performed per year with respect to the rental enterprise. Note that these hours of service do not have to be performed by you personally.

(3) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement does not apply to the 2018 tax year.

For purposes of the safe harbor, rental services include:

advertising to rent or lease the real estate;

negotiating and executing leases;

verifying information contained in prospective tenant applications;

collection of rent;

daily operation, maintenance, and repair of the property;

management of the real estate;

purchase of materials; and

supervision of employees and independent contractors.

Some types of rental real estate are not eligible for the safe harbor. Real estate used by the taxpayer (including an owner or beneficiary of passthrough entity) as a residence for any part of the year is generally not eligible for the safe harbor. Nor is real estate rented or leased under a triple net lease.

Please call me at your earliest convenience to discuss the rental real estate safe harbor.

Sincerely,

[Your Name, Your Firm]


Also see: CPA Sample Client Letter: Year-End Tax Planning for Businesses.

Tax Software

PARKER TAX PRO LIBRARY - Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

Parker Tax Research

    ®2012 - 2019 Parker Tax Publishing. Use of content subject to Website Terms and Conditions.

IRS Codes and Regs
Tax Court Cases IRS guidance