Exploiting and Avoiding Self-Rental Rules: Grouping, Exceptions, Material Participation, 199A, NIIT

Taxpayers operating businesses and owning property naturally consider leasing or renting the property to the activity when needed. Under the self-rental rule, when taxpayers rent property to a business in which they materially participate, the self-rental rules come into play. Income and losses are subject to contrary tax treatment under the self-rental rules of IRC Section 469. While losses are considered passive and can only be used to offset passive income, income from self-rentals is deemed nonpassive and generally subject to ordinary income treatment.

Additionally, if the taxpayer materially participates in an activity (five of the past 10 years), the rental income from the property continues to be nonpassive even after the business is sold. Tax practitioners must also consider whether income from self-rental qualifies for the 199A deduction and whether the income is subject to NIIT. There are exceptions to the self-rental rules. Tax professionals working with businesses need to understand who is subject to these rules and how to utilize or avoid these rules to benefit taxpayers.

Listen as Jeremias Ramos, CPA, Tax Manager at DDK PC, discusses the self-rental rules under Section 469 and provides strategies to circumvent or exploit these rules.

1. Section 469 passive activity rules
2. Self-rental exceptions
3. Property types
4. Ownership
   • Directly: Schedule E
   • Indirectly: Forms 1065/1120S
5. 199A
6. NIIT
7. Relative cases and examples
8. Strategies to avoid and mitigate overall tax

The panelist will review these and other key issues:

• When self-rental property qualifies for the 20 percent QBI deduction
• What are the exceptions to the self-rental rules?
• How grouping can be used to mitigate tax on self-rentals
• Reporting self-rental income and losses owned directly (Schedule E) and indirectly (Form 1065 and 1120S)

Learning Objectives

After completing this course, you will be able to:

• Ascertain when self-rental property qualifies for a QBI deduction
• Determine how grouping is used to circumvent self-rental treatment
• Decide which self-rental properties are subject to NIIT
• Identify taxpayers subject to the self-rental rules

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of individual income taxation, including itemized deductions, individual income tax credits, net operating loss limitations including carrybacks and carryforwards.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).