How to keep contemporaneous logs for pass through tax deduction

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How to keep contemporaneous logs for pass through tax deduction

Joshua T.
Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes

I want to document my agent's and my own activities so I can claim the 20% Pass-Through Tax Deduction (aka Safe Harbor). I know the logs have to be contemporaneous. Wondering how others are doing this?

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
6y

@Joshua T.

As mentioned by others, the 250hr safe harbor is an unnecessary gimmick. You should qualify as a trade or business as is.

But there're plenty of apps to do these logs if you want to be extra safe or if you're trying to qualify as a Real Estate Professional, a different game that also requires contemporaneous logs. Just google "time-tracking apps."

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    6y

    I recorded my actual time, made an estimate of hours per week per property for my managers time and used a standard rate per hour for contractors charges. It was pretty accurate, but ultimately I felt really unnecessary.

    The trade or business standard in code section 162 is not that hard to meet if you have typical facts. So I don't bother with recording time any longer since I'm quite confident I meet that standard, no safe harbor is therefore needed.

    If you have multiple properties as I do you might be better served by simply working up a list upfront of all factors tending to establish the trade or business nature of your activities instead of tying yourself to unwieldy contemporaneous logs that must be kept ever year indefinitely.

    My list has about 30 factors that tend to establish trade or business status, very likely far more than I would ever need to prevail if challenged. 

    2Reply
  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    6y

    Easy, Avoid the safe harbor and look at the factor that its more than likely a trade or business.   Hazard v Commissioner. 

    @Natalie Kolodij @Jake Hottenrott wouldn't you agree?

    [email protected]224-381-2660
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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y

    @Joshua T.

    As mentioned by others, the 250hr safe harbor is an unnecessary gimmick. You should qualify as a trade or business as is.

    But there're plenty of apps to do these logs if you want to be extra safe or if you're trying to qualify as a Real Estate Professional, a different game that also requires contemporaneous logs. Just google "time-tracking apps."

    3Reply
  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y

    @Steven Hamilton II and @Michael Plaks So safe harbor and trade/business qualification are mutually exclusive? I have a single owner-operator LLC and one multi in my personal name. The safe harbor would not benefit me?

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y
    Originally posted by @Joshua T.:

    So safe harbor and trade/business qualification are mutually exclusive? I have a single owner-operator LLC and one multi in my personal name. The safe harbor would not benefit me?

    No. Safe harbor is simply a new way to qualify as T/B. It is cumbersome and is not needed in most cases. Probably not needed for you. You should be able to qualify without the need to invoke the safe harbor and jump thru its hoops.

    2Reply
  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y


    @Michael Plaks and@Steven Hamilton II  I had a meeting with my CPA. He has no idea how a house-hacker with a regular job like me could get a QBI discount on their rental income. Even the safe harbor rule doesn't apply to occupied residences. It doesn't seem to be that easy.

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    6y

    @Joshua T.

    Is your rental property activity generating a net taxable gain or loss without the QBI?

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  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y
    Originally posted by @Dave Toelkes:

    @Joshua T.

    Is your rental property activity generating a net taxable gain or loss without the QBI?

     Gain.

    0Reply
  • Kory Reynolds
    Accountant · NH · Member since 2019 · 269 posts · 288 votes
    6y
    Originally posted by @Joshua T.:


    @Michael Plaks and@Steven Hamilton II  I had a meeting with my CPA. He has no idea how a house-hacker with a regular job like me could get a QBI discount on their rental income. Even the safe harbor rule doesn't apply to occupied residences. It doesn't seem to be that easy.

    You likely need a new CPA. You get a QBI deduction of an activity is an IRC Section 162 trade or business, as my colleagues have already stated. Some of the buzz words around 162 would be that the activity is for the intent of profit, and that it is regular and continuous. As already mentioned, in Hazard v Commissioner the courts decided that even a single family rental met the threshold to be a trade or business. It is a VERY low barrier to get across. If you are managing your properties, you are very likely all set. It sounds like your CPA is confusing 162 with being a qualified real estate professional under 469 - two very seperate and distinct tests.

    The one rental area where the QBI is quickly lost is triple net lease, but even then for a landlord in the business of doing triple net leases, they could qualify for 162.

    2Reply
  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y
    Originally posted by @Kory Reynolds:
    Originally posted by @Joshua T.:


    @Michael Plaks and@Steven Hamilton II  I had a meeting with my CPA. He has no idea how a house-hacker with a regular job like me could get a QBI discount on their rental income. Even the safe harbor rule doesn't apply to occupied residences. It doesn't seem to be that easy.

    You likely need a new CPA. You get a QBI deduction of an activity is an IRC Section 162 trade or business, as my colleagues have already stated. Some of the buzz words around 162 would be that the activity is for the intent of profit, and that it is regular and continuous. As already mentioned, in Hazard v Commissioner the courts decided that even a single family rental met the threshold to be a trade or business. It is a VERY low barrier to get across. If you are managing your properties, you are very likely all set. It sounds like your CPA is confusing 162 with being a qualified real estate professional under 469 - two very seperate and distinct tests.

    The one rental area where the QBI is quickly lost is triple net lease, but even then for a landlord in the business of doing triple net leases, they could qualify for 162.

    I think you're right. He also didn't have much to say about using HSA as a tax-efficient savings vehicle. Any advice on finding a good CPA? Bigger Pockets' pro list doesn't really have anyone listed in my area.  

    0Reply
  • Kory Reynolds
    Accountant · NH · Member since 2019 · 269 posts · 288 votes
    6y
    Originally posted by @Joshua T.:
    Originally posted by @Kory Reynolds:
    Originally posted by @Joshua T.:


    @Michael Plaks and@Steven Hamilton II  I had a meeting with my CPA. He has no idea how a house-hacker with a regular job like me could get a QBI discount on their rental income. Even the safe harbor rule doesn't apply to occupied residences. It doesn't seem to be that easy.

    You likely need a new CPA. You get a QBI deduction of an activity is an IRC Section 162 trade or business, as my colleagues have already stated. Some of the buzz words around 162 would be that the activity is for the intent of profit, and that it is regular and continuous. As already mentioned, in Hazard v Commissioner the courts decided that even a single family rental met the threshold to be a trade or business. It is a VERY low barrier to get across. If you are managing your properties, you are very likely all set. It sounds like your CPA is confusing 162 with being a qualified real estate professional under 469 - two very seperate and distinct tests.

    The one rental area where the QBI is quickly lost is triple net lease, but even then for a landlord in the business of doing triple net leases, they could qualify for 162.

    I think you're right. He also didn't have much to say about using HSA as a tax-efficient savings vehicle. Any advice on finding a good CPA? Bigger Pockets' pro list doesn't really have anyone listed in my area.  

    Many of us on the forum  work with clients nationwide, so it would really be a matter of reaching out to a couple, having a conversation, and seeing who you think might be a good fit. Rhode Island is a small state, so not too surprising you didn't find anyone in your immediate area. Many New England based firms / accountants will have experience with RI (if that is important to you) just by proximity - many multi state businesses also do work there. Other then that, any of those who replied to this thread would be more than competent to assist you.

    1Reply
  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y
    Originally posted by @Kory Reynolds:
    Originally posted by @Joshua T.:
    Originally posted by @Kory Reynolds:
    Originally posted by @Joshua T.:


    @Michael Plaks and@Steven Hamilton II  I had a meeting with my CPA. He has no idea how a house-hacker with a regular job like me could get a QBI discount on their rental income. Even the safe harbor rule doesn't apply to occupied residences. It doesn't seem to be that easy.

    You likely need a new CPA. You get a QBI deduction of an activity is an IRC Section 162 trade or business, as my colleagues have already stated. Some of the buzz words around 162 would be that the activity is for the intent of profit, and that it is regular and continuous. As already mentioned, in Hazard v Commissioner the courts decided that even a single family rental met the threshold to be a trade or business. It is a VERY low barrier to get across. If you are managing your properties, you are very likely all set. It sounds like your CPA is confusing 162 with being a qualified real estate professional under 469 - two very seperate and distinct tests.

    The one rental area where the QBI is quickly lost is triple net lease, but even then for a landlord in the business of doing triple net leases, they could qualify for 162.

    I think you're right. He also didn't have much to say about using HSA as a tax-efficient savings vehicle. Any advice on finding a good CPA? Bigger Pockets' pro list doesn't really have anyone listed in my area.  

    Many of us on the forum  work with clients nationwide, so it would really be a matter of reaching out to a couple, having a conversation, and seeing who you think might be a good fit. Rhode Island is a small state, so not too surprising you didn't find anyone in your immediate area. Many New England based firms / accountants will have experience with RI (if that is important to you) just by proximity - many multi state businesses also do work there. Other then that, any of those who replied to this thread would be more than competent to assist you.

     PM inbound.

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y
    Originally posted by @Joshua T.:
    Originally posted by @Dave Toelkes:

    @Joshua T.

    Is your rental property activity generating a net taxable gain or loss without the QBI?

     Gain.

    Just to confirm - you are talking about your net rental taxable income(after depreciation) is positive?
    If it is positive - then you may potentially get a QBI deduction.
    Only reason i mention if this is the case - you may want to see if you can do something on a future property like a cost-seg that would bring your rental income down.

    Regardless - you likely will get the QBI deduction on your real estate agent/realtor business. 

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
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  • Joshua T.
    OP
    Specialist · Providence, RI · Member since 2017 · 34 posts · 12 votes
    6y
    Originally posted by @Basit Siddiqi:
    Originally posted by @Joshua T.:
    Originally posted by @Dave Toelkes:

    @Joshua T.

    Is your rental property activity generating a net taxable gain or loss without the QBI?

     Gain.

    Just to confirm - you are talking about your net rental taxable income(after depreciation) is positive?
    If it is positive - then you may potentially get a QBI deduction.
    Only reason i mention if this is the case - you may want to see if you can do something on a future property like a cost-seg that would bring your rental income down.

    Regardless - you likely will get the QBI deduction on your real estate agent/realtor business. 

     I am not sure what you mean when you wrote "real estate agent/realtor business." I am not an agent or broker. 

    0Reply
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