The IRS issued a final ruling explaining how to qualify for a real estate income safe harbor to receive the Qualified Business Income (QBI) deduction. You will need to make this safe harbor determination annually.
To qualify for a safe harbor for a real estate rental income deduction under section 199A, taxpayers must meet all of the requirements stated in this final ruling. They include maintaining separate books for each enterprise and keeping contemporaneous records, including time report logs and similar documents. You’ll also need to provide the description, hours and dates of all services performed and who performed them.
Rental real estate enterprises in existence for fewer than four years must have performed 250 or more hours of rental services per year. Those in business longer must meet this standard in three of the five previous years.