Rental Real Estate Safe Harbor Guidance Issued

25 September 2019

The IRS has issued a final revenue procedure on the safe harbor for rental real estate enterprises under Code Sec. 199A. This revenue procedure applies to tax years ending after December 31, 2017.

However, for the 2018 tax year, taxpayers and relevant pass-through entities can rely on the safe harbor set forth in Notice 2019-7, I.R.B. 2019-9, 740.

Aggregation Regulations

The final revenue procedure incorporates the aggregation rules in Reg. §1.199A-4. A rental real estate enterprise is treated as a single trade or business for purposes of the aggregation rules if safe harbor requirements are met. For example, a rental real estate enterprise cannot include property rented to a trade or business conducted by the taxpayer or RPE that is commonly controlled under Reg. §1.199A-4(b)(1)(i).

Rental Real Estate Categories

The final revenue procedure clarifies how properties are combined into a rental real estate enterprise. It creates two “rental real restate categories” for combining real properties as a single enterprise:

  • residential; or
  • commercial.

It also discusses the treatment and proper categories for:

  • new rental properties; and
  • mixed-use properties.

Rev. Proc. 2019-38