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Sidney Kess Sidney Kess

Individuals and owners of pass-through entities (relevant pass-through entities, or RPEs) may qualify for a personal deduction under Code §199A. This is the qualified business income (QBI) deduction. Millions of individuals and entities own rental real estate, but as the term QBI states, it applies with respect to business income.

So, the problem for many who own rental real estate is whether their activities amount to a trade or business. They walk a fine line between trying to show the activities are a business (e.g., for purposes of the QBI deduction; to avoid the net investment income tax under Code §1411) or that the activities are merely for investment (e.g., to avoid self-employment tax). For purposes of the QBI deduction, the IRS has created a safe harbor under which rental real estate can be treated as a trade or business (Rev. Proc. 2019-38).

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