---
title: Update on Tax Deductions for Real Estate Investors
description: The Tax Cuts and Jobs Act of 2017 (“TCJA”) offered a new tax deduction of up to 20% for owners of certain pass-through entities such as limited liability companies, partnerships, and other entities.
---

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# [Update on Tax Deductions for Real Estate Investors](https://blog.fgg1031.com/blog/-update-on-tax-deductions-for-real-estate-investors)

 Written by [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) | Apr 4, 2019 4:42:24 PM

 

**The Tax Cuts and Jobs Act of 2017** (“TCJA”) offered a new tax deduction of up to 20% for owners of certain pass-through entities such as limited liability companies, partnerships, and other entities. **Section 199A of TCJA offers the potential for some real estate investors to receive an added tax deduction while owning and managing investment properties.** This deduction has several limitations on type and amount of income subject to the potential deduction that should be reviewed with a qualified tax advisor.

The potential to receive additional tax benefits per **Section 199A** combined with the option for tax deferral in a **1031 Exchange** at the time of sale, can provide real estate investors with potentially significant tax advantages.

On **January 18, 2019, the Treasury released Notice 2019-07** which provides added additional guidance on how investors can qualify for the new deduction including specific guidelines (“safe harbor”) for real estate investors. The Notice also introduced a new tax term, a **“rental real estate enterprise”** along with conditions that must be met for a rental real estate enterprise to be eligible for the **199A deduction**.

**To meet the safe harbor and qualify for the deduction, investors must meet the following:**

1. **Separate records must be maintained for each rental real estate enterprise:** 
     1. A real estate enterprise can consist of a single or multiple real estate rentals.
     2. 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 documented 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 written records to document the following:** 
     1. Hours of all services performed;
     2. Description of services performed;
     3. Dates on which such services were performed;
     4. Who performed the services.

**Rental services that may be counted toward the 250-hour requirement include:**

1. *Advertising to rent or lease the real estate;*
2. *Negotiating and executing leases;*
3. *Verifying information contained in tenant applications;*
4. *Collection of rent;*
5. *Daily operation, maintenance, and repair of rental property;*
6. *Management of the real estate;*
7. *The purchase of materials for repairs;*
8. *Supervision of employees and independent contractors.*

**Rental services for purposes of the rental real estate enterprise safe harbor do not include the following:**

1. *Financial activities, such as arranging financing;*
2. *Procuring property;*
3. *Reviewing financial statements or reports;*
4. *Planning, managing, or constructing capital improvements;*
5. *Hours spent traveling to and from rental real estate.*

*Rental services counted toward the 250-hour requirement 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.*

**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. For more information, please contact us at 866 398-1031 or via email at** [info@FirstGuardianGroup.com](mailto:info@FirstGuardianGroup.com).

[View full post](https://blog.fgg1031.com/blog/-update-on-tax-deductions-for-real-estate-investors)

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