Intuit_Devin
Employee
Employee

Every tax preparer wishes there was a clear answer to this, but unfortunately there just isn't.

The 250 hour safe harbor is a bar that means an activity is automatically a trade or business, but failing to meet this safe harbor doesn't mean this is NOT a t/b. Case law has numerous well known cases where very low level rental activity was held to be a t/b. (E.g. Hazard v Commissioner, 7 TC 372 (1946), or Lagriede v Comm’r, 23 TC 508 (1954)). Ultimately you have to use your judgment as a preparer and look at the facts and circumstances of your case compared to settled case law.

That said, one excellent bright line test is whether these activities have made a practice of issuing Form 1099-MISC forms to any service providers. The IRS requires consistency in treatment of an activity as a business for all relevant portions of the tax code. If they've been issuing Form 1099-MISC, then that's indicative of a business, and it would seem consistent to continue to treat such an activity as a business for purposes of the QBI deduction. If these activities haven't been issuing Form 1099-MISC, then that would suggest that up to this point that the owner has not viewed them as business activities subject to the Form 1099-MISC requirement for businesses. To suddenly change positions now that there's a benefit to being a business would certainly seem like a weak position to take.