Is the 20% qualified business income deduction permanent for Memphis landlords?

Yes, according to a legal summary of the 2025 tax law, Section 199A was made permanent at a 20% rate. It is a federal deduction, so it applies to rental owners in Memphis, Tennessee the same as anywhere else, but only when the rental activity is a trade or business. Your CPA decides whether yours qualifies.

What is the IRS 250-hour safe harbor for rental property?

Revenue Procedure 2019-38 treats a rental real estate enterprise as a business if it keeps separate books and records, has at least 250 hours of rental services performed per year (or in three of the last five years for enterprises four years old or more), keeps contemporaneous time records, and attaches a statement to the return. A Memphis, Tennessee owner can use it for rentals in Shelby County. This is general information, not tax advice.

Which hours count toward the 250 hours for a rental?

Maintenance and repairs, collecting rent, paying expenses, dealing with tenants and marketing the property count, and services performed by others on your behalf can count. Investor activities such as arranging financing, buying property, reviewing financial statements and traveling to the property do not count.

Can a triple net lease or a home I live in qualify for the safe harbor?

No. Property leased under a triple net lease and property the owner uses as a residence are excluded from the Revenue Procedure 2019-38 safe harbor. An owner of a Shelby County, Tennessee rental in either situation would need to rely on the general rules for trade or business status instead, with a tax professional.

Tax Strategy · October 13, 2026

Is Your Memphis Rental a Business? The 250-Hour Test Behind the 20% Deduction

Congress made the 20% qualified business income deduction permanent, but a rental only gets it if the IRS treats it as a trade or business. A 2019 safe harbor gives owners a clear test: 250 hours of rental services a year, documented as they happen. With about eleven weeks left in 2026, here is how that works for a Memphis, TN owner.

The deduction is permanent. The business test is not automatic.

According to the Foster law firm's tax blog on the 2025 tax law, the Section 199A qualified business income (QBI) deduction was made permanent, the rate stays at 20%, and the phase-in range for the income limitations widened from $50,000 to $75,000 for most filers and from $100,000 to $150,000 for married couples filing jointly. The same law added a $400 minimum deduction for taxpayers with at least $1,000 of QBI from a business in which they materially participate, effective for tax years beginning after December 31, 2025.

The catch for landlords is the word “business.” Rental income only counts as QBI when the rental activity rises to a trade or business, and the tax code has never defined that line cleanly for real estate. That is why a Memphis owner with one duplex and an owner with twelve single-family homes can reach different answers on the same facts.

What the IRS safe harbor requires

Revenue Procedure 2019-38, announced in IRS news release IR-2019-158, lets a “rental real estate enterprise” be treated as a business if it meets four conditions. It must keep separate books and records. At least 250 hours of rental services must be performed each year, or, for an enterprise that has existed four years or more, in at least three of the last five years. The owner must keep contemporaneous records of the hours, the dates, a description of the services and who performed them. And a statement must be attached to the return for every year the safe harbor is used.

The Journal of Accountancy adds the details that trip people up. Property under a triple net lease is ineligible, as is any property you use as a residence. Commercial and residential real estate cannot be combined in one enterprise, and you generally treat each property as its own enterprise or group similar properties together. Failing the safe harbor does not disqualify you, because an owner can still argue business status under the general rules, but the safe harbor is the version that comes with a checklist.

The hours do not need to be yours, but the proof does need to be dated. A log written in March from memory is a weaker document than a log kept in October.

Which hours count

Per the Journal of Accountancy, qualifying services include maintenance and repairs, collecting rent, paying expenses, dealing with tenants and efforts to rent the property. Services performed by others on your behalf can count, which is how an owner who hires out the day-to-day work can still reach 250. Time spent as an investor does not count: arranging financing, buying property, reviewing financial statements and traveling to and from the property are all excluded.

Put 250 hours in context. It is about 4.8 hours a week. Spread across a four-unit portfolio, it is roughly 62 hours per door per year, or a little over an hour a week for each. A self-managing owner with a full-time job may land near that number or well short of it, and an owner whose rentals are run by a manager has to ask a different question: does the record of what was done actually exist, and does it show dates, descriptions and who did the work?

A worked example, clearly hypothetical

Suppose an owner holds a duplex in Memphis, Tennessee, in Shelby County, with $14,000 of net rental income for the year after deductible expenses such as management fees, repairs, insurance, interest, property tax and depreciation. If the rental qualifies, the tentative deduction is 20% of that QBI, or $2,800. For a filer in the 22% federal bracket, that is roughly $616 less tax. The number is illustrative, not a forecast. The actual deduction is also capped by a taxable-income test, and above the threshold range W-2 wage and property-basis limits can apply, so it is a calculation for your CPA, not a guess.

Notice what the example depends on: net income. A deduction that is 20% of a small number stays small. That is one reason the earlier Homefront articles on bonus depreciation and cost segregation and repair-versus-improvement safe harbors belong in the same conversation: both change the net income the 20% is applied to.

Why the backdrop makes this matter more

Nationally, Freddie Mac's Primary Mortgage Market Survey for the week of October 8, 2026 put the 30-year fixed average at 7.40%, against 6.30% a year earlier. That is a national owner-occupied benchmark, not an investor rate; investment-property loans typically price above it with larger down payments. When financing eats more of the income, every after-tax dollar counts, and a deduction that depends on a time log is worth a few hours of record-keeping. We walked through that math in our piece on re-underwriting at seven percent.

What to do before December 31

Start the log today if you do not have one. Record the date, the task, the hours and who did it. Do not rebuild a year from memory.
Define your enterprises. Decide, with your CPA, whether each property is its own enterprise or whether similar properties are grouped, and keep residential and commercial apart.
Separate the books. The safe harbor requires separate records for each enterprise.
Check for disqualifiers. A triple net lease or a property you also use as a residence is outside the safe harbor.
Ask your manager what records exist. Hours performed by others can count, so ask how service activity is documented and whether you can get it in a form your CPA can use.
Plan the return statement. The IRS requires a statement for each year you rely on the safe harbor.

Where our team fits

Homefront does not prepare your taxes or give tax advice, and nothing here is tax or legal advice; your CPA decides whether your rentals qualify. What our team does is run the property side and keep organized records of that work. If you own in Memphis, Germantown, TN, Collierville or Bartlett, we can talk through how your portfolio is managed. Management fees at Homefront never exceed 10% of monthly rent, with a customized schedule by portfolio size and no hidden charges; tenant screening is paid by the applicant, and under our lease tenants are responsible for legal fees arising from a breach.

Sources & further reading: IRS — IR-2019-158, safe harbor for rental real estate (September 24, 2019); Journal of Accountancy — QBI deduction for rental real estate businesses; Foster — Section 199A under the 2025 tax law (tax law blog); Freddie Mac — Primary Mortgage Market Survey (week of October 8, 2026).