Calculating the Land and Building Value of Your Rental Property
February 23, 2024
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February 24, 2024

February 24, 2024 | read

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Brandon Hall

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20% Pass-Through Deduction (199A) for Landlords

Landlords can qualify for the 20% pass-through deduction under the following safe-harbor:

  • The property is held directly by the individual or through a disregarded entity by the individual or passthrough entity seeking the pass-through deduction (i.e. a person who owns a single-member LLC which holds a property qualifies).
  • Commercial and residential real estate may not be part of the same enterprise.
  • Separate books and records are maintained to reflect income and expenses for each rental real estate activity or enterprise (a separate real estate enterprise may constitute multiple properties as long as all commercial or all residential).
  • 250+ hours of rental services are performed for the enterprise (see detail below).
  • You maintain contemporaneous records, including time reports or similar documents, regarding 1) hours of all services performed, 2) description of all services performed, 3) dates on which such services are performed, and 4) who performed the services.

Rental services include advertising to rent, negotiating and executing leases, verifying tenant applications, collection of rent, daily operation and maintenance, management of the real estate, purchase of materials, and supervision of employees and independent contractors (services performed by owners or employees, agents, or contractors all count toward the 250).

Note that just because your rentals don’t meet the requirements for this safe harbor, doesn’t necessarily mean they won’t qualify for the 20% deduction.

However, whether or not your rentals qualify for the described safe harbor, if your rentals qualify as a business you will have to issue Form 1099 for all independent contractors you pay over $600/year. This may be new for some investors, as landlords are generally exempt from this requirement.

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