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People who own just one or two rental properties might not qualify for the new 20 percent federal deduction that big-time real estate investors and other pass-through entities will get starting this year. The proposed regulations do not specify how many or what type of properties you’d need to own to qualify as a trade or business under this definition, except in one specific case: A business that owns property that it rents to itself can treat that property as a trade or business. The proposed rules made it clear that if you own shares in a real estate investment trust — a pass-through entity that owns and manages large-scale properties — you can deduct 20 percent of your dividends. This is a lease in which the owner collects rent and the tenant is responsible for everything including maintenance, property taxes and building insurance. Kenneth Weissenberg, head of real estate services for accounting firm EisnerAmper, said that if you own a 10-unit apartment building that requires ongoing maintenance and tenant dealings, you most likely would qualify, even if you have a property manager. “I thought because they would give you a deduction for REIT dividends, and a deduction if you invested in a real estate partnership, that they were going to help out the small guy and give you a deduction if you have a rental or a couple rentals.” Levine said renting out half a duplex could qualify as a business, “but you would have to show it’s regular and continuing. It was not their intent in the proposed regulations to treat all real estate rental activity as a qualifying trade or business.” Real estate investment has always been a tricky business for the IRS, because “it doesn’t require a lot of day-to-day, hands-on activity,” said Dustin Stamper, a managing director with accounting firm Grant Thornton. “But that doesn’t mean it can’t be a trade or business.” Elsewhere in the tax code, the IRS has established more specific and quantifiable regulations for real estate, such as the definition of a “real estate professional” and “material participation” in its passive-activity rules. Many tax pros hoped the IRS would incorporate those rules — or some like it — into their proposed regulations for the pass-through deduction. “It would be extremely helpful if they could come up with a similar test, an objective criteria rather than a subjective criteria,” said Bob Keebler, a CPA in Green Bay, Wis. Real estate investors who do qualify for the deduction will still have to contend with some limits to the deduction that apply over certain income levels, but these rules are more generous for real estate than other types of businesses.