How to keep contemporaneous logs for pass through tax deduction

Question

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?

Michael Plaks · Answer

@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."

Kory Reynolds · Answer

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.

Michael Plaks · Answer

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.

Christopher Smith · Answer

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.

Kory Reynolds · Answer

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.

Steven Hamilton II · Answer

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?

Joshua T. · Answer

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

Basit Siddiqi · Answer

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.

Joshua T. · Answer

PM inbound.

Joshua T. · Answer

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.

How to keep contemporaneous logs for pass through tax deduction

Most Popular Reply