Exceeding Expectations. Always. — Business Advisors and CPAs

Notice 2019-07 Proposed Rev Proc for 199A Rental Real Estate Safe Harbor

The purpose of the notice is to allow for a safe harbor for qualification of a rental activity as a qualified trade or business for purposes of the §199A deduction. Failure to meet the qualifications of the safe harbor does not necessarily disqualify a rental activity from being considered a Qualified Trade or Business for §199A purposes.  It will just need to be evaluated on a facts and circumstances basis and could be subject to more IRS scrutiny. To read the original notice from please visit

Taking the safe harbor requires attaching a statement to the tax return.

The safe harbor can be taken by either a pass-through entity or an individual.

To qualify for the safe harbor, there are 3 requirements:

  1. Separate books and records must be maintained for each Rental Real Estate enterprise.
    1. An enterprise is defined under this notice as:
      1. An interest held, directly or via a disregarded entity, in real property used for the production of rents.
      2. You can either treat each individual property as a separate enterprise or you can aggregate similar properties into a single enterprise (no formal election required for this).
        1. You can NOT combine commercial and residential real estate activities into the same enterprise however.
        2. This treatment must be consistent from one year to the next.
  2. 250 hours or more of rental services must be performed annually by the taxpayer, an employee, agent, or independent contractor.
    1. This would suggest with use of the words agent and independent contractor that a management company employed to oversee the services would satisfy the hours requirement.
    2. Rental services are defined by the notice as:
      1. Advertising the property for rent or lease
      2. Negotiating and executing leases
      3. Verifying tenant applications
      4. Collection of rents
      5. Overseeing daily operations and repairs and maintenance
      6. General management of the property
      7. Purchasing of materials
      8. Supervision of employees and independent contractors
    3. Specifically excluded from rental services are:
      1. Financial or investment management activities
      2. Procuring property
      3. Studying or reviewing financial statements
      4. Planning, managing, or constructing long-term capital improvements
      5. Commuting hours to and from the property
  3. Contemporaneous records must be kept to include the when, how much, what, and who of all services performed (hours logged, description of service, date, and who performed the service).
    1. This requirement for contemporaneous records does not apply for any tax year that began before January 1, 2019.


There are two exclusions from the safe harbor:

  1. Property that qualifies under §280A (personal use of more than 14 days) cannot qualify for the safe harbor.
  2. Triple net leases arrangements where the tenant is responsible for paying property taxes, insurance, and repairs and maintenance in addition to rents and utilities also cannot qualify for the safe harbor.