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16097: QBI Deduction - Section 199A Trade or Business Safe Harbor: Rental Real Estate


QBI

How do I choose that a rental is eligible for the Safe Harbor Rental Real Estate Section 199A under Notice 2019-38 and generate the required attachment?

 

IRS Notice 2019-38 provides a safe harbor whereby rental real estate properties that meet certain conditions can definitely be treated as a trade or business for Qualified Business Income (QBI) purposes. Section 3.05 of that notice explains that real estate used by the taxpayer (including an owner or beneficiary of pass-through entity) as a residence for any part of the year under section 280A is not eligible for this safe harbor.  Taxpayers may not vary this treatment from year-to-year unless there has been a significant change in facts and circumstances. Commercial and residential real estate may not be part of the same enterprise for purposes of meeting this safe harbor. 

You can make this selection in a 1040 return on the E or 4835 screen. In a 1041, this entry is found on the E screen. In a 1120-S or 1065 return, this selection is found on the 8825 screen. Use the drop list Meets Section 199A rental "safe harbor" (Notice 2019-38) to choose the relevant option: 

  • A - Separate rental enterprise
  • B - Residential rental enterprise grouping for safe harbor
  • C - Commercial rental enterprise grouping for safe harbor

E screen: 

4835 screen: 

 

 

 

8825 screen:  

 

 

 

 

After making the appropriate selection, go to view mode of the return and review statement QBI Safe Harbor. This statement is required to be signed and then attached as a PDF to the e-filed return. EF Message 1261, 1262, 1263, 1264, 1265, or 1266 (depending on the A/B/C and T/S selections) generates notifying you of this process: 

  1. View the return and locate QBI Safe Harbor.
  2. Select this form and print it out. 
  3. Have the taxpayer or authorized representative review and physically sign and date the statement. 
    • Note: Electronic signatures, through the eSign feature in view or SFP eSignature Events, are not available for this form. 
  4. Scan the document back in to your computer and save it as a PDF. We recommend using Drake Documents for this process.
  5. The form must be named as follows depending on which selection (A, B, or C) you made in the drop list above and the type of return:
    • 1120S/1065:  
      • For selection A, name the PDF QBISAFE(A).PDF
      • For selection B, name the PDF QBISAFE(B).PDF
      • For selection C, name the PDF QBISAFE(C).PDF
    • 1040: 
      • For Selection A, name the PDF QBI_SAFE_A.PDF
      • For Selection B, name the PDF QBI_SAFE_B.PDF
      • For Selection C, name the PDF QBI_SAFE_C.PDF
  6. Once the form is saved in the above format, open the return in view mode.
  7. Click Attach PDF at the top. 
  8. Browse to the location in which you saved the PDF in step 3. 
  9. Select the PDF and click Open
  10. Verify that the attachment was successful - a green check will show on the PDF Attachments window. 
  11. Re-calculate the return to clear red message 1261, 1262, 1263, 1264, 1265, or 1266.

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