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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 Section 199A rental "safe harbor" (Rev. Proc. 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

After making the appropriate selection, go to view mode of the return and review statement QBI Safe Harbor. This statement must be attached as a PDF to the e-filed return (EF Message 1261, 1262, 1263, 1264, 1265, or 1266 generate). 


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