Safe Harbor for Rental Real Estate: Key QBI 199A Requirements

The Internal Revenue Service has reaffirmed that rental real estate owners seeking the Qualified Business Income (QBI) deduction under Section 199A must meet a four-part safe harbor that has not changed in substance since its formal adoption. For the 2025 filing season, however, the IRS expects sharper recordkeeping.

As of September 7, 2025, taxpayers and relevant pass-through entities can still rely on IRS Revenue Procedure 2019-38 to treat certain rental real estate activity as a trade or business—provided they:

• keep separate books for each enterprise,
• meet the threshold for hours of rental services,
• maintain contemporaneous records, and
• attach a signed statement with the tax return.

The safe harbor is optional, applies year by year, and remains a decisive tool for landlords seeking certainty that their rental income qualifies for the QBI deduction.

What the Safe Harbor Requires (2025)

At its core, the safe harbor sets out four requirements. Missing any one step means the enterprise may still qualify under general trade-or-business rules, but it loses the safe harbor’s presumption. The IRS emphasizes that each condition matters.

1. Separate books and records
2. 250 or more hours of rental services (subject to the multi-year rule below)
3. Contemporaneous records for hours, dates, tasks, and who performed them
4. A signed statement attached to the timely filed return

1. Separate books and records

Taxpayers must maintain separate books and records that clearly show income and expenses for each rental real estate enterprise.

• If one enterprise includes several properties, owners can keep property-level income and expense statements and then consolidate them at the enterprise level.
• Mixing accounts across different enterprises or blending personal and business expenses can jeopardize a safe harbor claim.

2. Hours of rental services (the 250-hour rule)

The safe harbor draws a bright line around qualifying hours:

• For an enterprise in existence less than four years: 250 hours of rental services must be performed each year.
• For an enterprise in existence four or more years: 250 hours must be performed in at least three of the past five consecutive tax years.

Qualifying rental services (examples):

• Advertising the property
• Negotiating leases
• Screening tenants
• Collecting rent
• Daily operations, maintenance, and repairs
• Buying materials
• Managing or supervising employees or contractors who perform rental services

Excluded activities (do NOT count toward the 250 hours):

• Arranging financing or refinancing
• Buying the property (acquisition activities)
• Studying financial or operational reports
• Planning or managing construction
• Traveling to and from the property

Important: Time spent traveling to the property does not count. This frequently trips up owners who assume travel time qualifies.

3. Contemporaneous records

For tax years beginning January 1, 2020, and later, the IRS requires contemporaneous records that show, at a minimum:

• Hours performed
• A short description of the services
• Dates of the work
• Who performed the work

This applies whether the landlord does the work personally, uses employees, or hires outside contractors. Gaps in documentation can make audits harder and may result in losing the deduction.

4. Signed statement attached to the return

The taxpayer or the relevant pass-through entity must attach a signed statement to each timely filed original return (or to an amended 2018 return only) for any year the safe harbor is claimed.

The statement must:

• Confirm the safe harbor requirements are met
• Include a declaration under penalties of perjury that the facts are true and complete
• Briefly describe the rental real estate enterprise(s) covered by the safe harbor for the year

Exclusions and Annual Nature of the Safe Harbor

The safe harbor does NOT apply to:

• Real estate used as a residence under Section 280A(d) (e.g., a personal vacation home rented part-time)
• Properties rented under a triple net lease where the tenant pays taxes, insurance, and maintenance
• Any real estate rented to a trade or business conducted by the taxpayer or a related pass-through entity

The IRS underscores that the safe harbor is an annual determination:

• A landlord may qualify in one year but not the next.
• For older enterprises, failing to meet the three-of-five test (three qualifying years within five consecutive years) means the owner must rely on general trade-or-business rules or plan to meet the safe harbor in future years.

Practical Impact for Landlords and Tax Filers

The safe harbor can be the difference between obtaining the QBI deduction and facing a higher tax bill—especially for immigrant and first-time landlords. Two common trouble areas are:

• Counting non-qualifying tasks as service hours
• Weak or incomplete documentation

Example scenario:
– A small enterprise with three units held for more than four years: the owner screens tenants, makes repairs, and supervises contractors. Time spent traveling, reviewing bank statements, or meeting a banker about refinancing does not count.
– To meet the safe harbor the owner must still reach 250 hours in at least three of the past five years with qualifying tasks only.

Supervising a property manager:
– Supervision of employees or independent contractors who perform rental services can count.
– The owner must log the time, describe what was supervised, and identify who did the work.

Contemporaneous records requirement:
– Applies to tax years starting in 2020 and later, so 2025 filings must reflect consistent logs for 2024 activities (or the applicable three-of-five-year span).
– Reconstructing hours at tax time is risky; the IRS expects records made at or near the time of the work.

Separate books consequence:
– Property-level ledgers that roll up to enterprise-level summaries are acceptable.
– Mixing ledgers across multiple enterprises or personal accounts undermines the safe harbor.

New enterprises (in existence less than four years):
– Must meet 250 hours each year to use the safe harbor.
– Start-up activities like advertising, tenant placement, and frequent maintenance often help reach the threshold—but financing and acquisition activities are excluded and records must be kept from day one.

The safe harbor is optional. Some rental operations may prefer to qualify under the general facts-and-circumstances test (e.g., owners with triple net leases or limited qualifying hours). Still, the safe harbor’s clear rules are often easier to defend.

Recommended Process to Use the Safe Harbor

Owners should map out a simple, repeatable process:

1. Create a log format that captures the four required data points:
   • Hours, date, task description, and who performed the work.
2. Categorize activities as “counts” or “does not count” for hours of rental services, and train anyone helping to follow the same rules.
3. Keep separate accounting for each enterprise, with property-level detail that rolls up cleanly.
4. Prepare the signed statement each year, confirming the safe harbor and briefly describing each enterprise covered.
5. Recheck eligibility before filing—especially for older enterprises subject to the three-of-five-year test.

Tax professionals stress maintaining a clear boundary between qualifying services and excluded tasks. Owners should avoid padding logs with travel, financing, or acquisition work.

• When in doubt, record the task in plain words—e.g., “screened tenant applicants,” “supervised HVAC repair,” “collected rent and posted receipts.”
• Keep supporting documents (receipts, emails, invoices) that match the time entry. In an audit those items help confirm that recorded hours reflect real rental services.

Resources and Final Takeaways

• The IRS maintains public guidance on the QBI deduction and the rental real estate safe harbor. For official reference, see the IRS’s Qualified Business Income deduction FAQs at the IRS newsroom: Frequently asked questions about the Qualified Business Income deduction.

Key takeaways:

• The safe harbor remains a powerful, optional pathway for landlords seeking QBI certainty.
• It rewards disciplined accounting, precise tracking of qualifying hours, and honest separation of qualifying versus excluded activities.
• With a clean log, separate books, and a signed statement on file, landlords can file with greater confidence—and focus on keeping properties in good shape and tenants well served.