Section 199A and the rental real estate safe harbor

The rental safe harbor: 250 hours, and which 250

Revenue Procedure 2019-38 treats a rental real estate enterprise as a trade or business for Section 199A purposes if its conditions are met. An enterprise is an interest in real property held for the production of rents, one property or several, held directly or through a disregarded entity.

The hours test has two settings, and owners routinely quote the wrong one:

• An enterprise in existence less than four years: 250 or more hours of rental services per year.

The second setting is a relief measure, not a tightening. A mature property that had a quiet year does not lose the safe harbor if three of the last five clear the bar.

What counts as rental services, and what does not

The included list is operational: advertising to rent or lease the real estate; negotiating and executing leases; verifying information in prospective tenant applications; collection of rent; daily operation, maintenance and repair, including purchasing materials and supplies; management of the real estate; and supervision of employees and independent contractors. Crucially, those services may be performed by owners, employees, agents or independent contractors — so hours worked by your cleaner, your handyman and your management company count.

Our advice, plainly

If your property is managed — by us or by anyone else — ask your manager for an annual hours report by category, person and date, and file it with your return papers. Contemporaneous records kept by a contractor are still contemporaneous records. Most short-term rentals clear 250 hours comfortably once contractor time is counted; almost none of them can prove it a year later without the report.

Then have your CPA answer two questions in writing before year end: whether your personal use puts the property inside section 280A(d), and whether you are relying on the safe harbor or on section 162 on its own facts.

If you own a short-term rental in the United States and want the operating file — hours, statements, vendor records — kept to that standard, send us the property details. We study every request and tell you honestly whether and how we can help.