Select Living Magazine Issue IX

1. Separate records must be maintained for each rental real estate enterprise: A. A real estate enterprise can consist of a single or multiple real estate rentals. B. Commercial and residential rentals must be in separate enterprises and cannot be combined into the same real estate enterprise. 2. In the tax years, 2019 – 2023, at least 250 hours of rental services must be performed by the taxpayer or workers for the taxpayer for each rental real estate enterprise. 3. The taxpayer must maintain contemporaneous records including time reports, logs, or similar documents, to document the following: A. Hours of all services performed; B. Description of services performed; C. Dates on which such services were performed; D. Who performed the services. Rental services that may be counted toward the 250-hour requirement include: A. Advertising to rent or lease the real estate; Negotiating and executing leases; B. Verifying information contained in tenant applications; C. Collection of rent; D. Daily operation, maintenance, and repair of rental property; E. Management of the real estate; F. The purchase of materials for repairs; G. Supervision of employees and independent contractors. Rental services for purposes of the rental real estate enterprise safe harbor do not include the following: A. B. C. D. Financial activities, such as arranging financing; Procuring property; Reviewing financial statements or reports; Planning, managing, or constructing capital improvements; E. Hours spent traveling to and from rental real estate. Rental services counted toward the 250-hour require- ment may be performed by owners or employees, agents, and/or independent contractors working for the owners. The activities of several individuals may be aggregated for purposes of meeting the 250-hour requirement. The following types of rental real estate are not eligible for the safe harbor: 1. Real estate owned or managed under a triple net (“NNN”) lease agreement. 2. Rental property leased under an agreement that requires the tenant or lessee to pay a portion of the taxes, fees, insurance, and to be responsible for maintenance activities allocable to the portion of the property leased by the tenant. 3. Vacation property used by the taxpayer for any portion of the year. IRC SECTION 1031 EXCHANGES The Treasury Regulations also provided clarification regarding the calculation of the unadjusted basis imme- diately after acquisition (“UBIA”) of replacement property acquired by a taxpayer in a §1031 exchange. The favorable guidance on qualifying for the 20% deduc- tion and the positive outcome on calculating the replace- ment property basis in a 1031 exchange result in tax benefits that ultimately serve to increase return on invest- ment (“ROI”). Opting for tax deferral via a 1031 exchange provides tax advantages at the time of disposition and now the §199A safe harbor provides investors for further tax benefits when owning investment property. Taxpayers should discuss the §199A deduction and their specific investment situation with tax and/or legal advisors as the 20% deduction rules are complex in some areas. Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any significant real estate or business related transaction. © 2019 Asset Preservation, Inc. All rights reserved.

Select Living Magazine Issue IX | Page 37