topic Rental Income Qualified Business Deduction in Investors & landlords

Rental Income Qualified Business Deduction

SS573 — Mon, 15 Mar 2021 06:09:38 GMT

I am using TURBOTAX Premier. I have not claimed Safe Harbor Status for my rental property (single family home) or a Qualified Business Deduction.

However my final form review prior to filing electronically contains form 199A; "Rental Real Estate Safe Harbor Statement".

Is this correct/normal? If not how do I remove it?

Re: Rental Income Qualified Business Deduction

ColeenD3 — Mon, 15 Mar 2021 14:57:45 GMT

There are two types of Safe Harbor. The review sounds like it is referring to the first type. Is there any reason why you would not want your property to qualify?

1) The IRS on Tuesday issued a revenue procedure that provides a safe harbor for taxpayers under which a rental real estate enterprise will be treated as a trade or business for purposes of the qualified business income (QBI) deduction of Sec. 199A (Rev. Proc. 2019-38). Taxpayers whose real estate business does not meet the safe harbor may still qualify as a trade or business if it otherwise meets that definition under the Sec. 199A regulations. The revenue procedure finalizes rules that the IRS proposed in January in Notice 2019-07.

2) De Minimis Safe Harbor Election

This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.

If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.

Here are the rules you need to meet to take this election:

You don't have an applicable financial statement (most people don't).
You have a consistent process for how you record expenses and assets.
You record these items as expenses on your books/records.
The cost of each item as shown on your receipt is $2,500 or less.

Re: Rental Income Qualified Business Deduction

SS573 — Mon, 15 Mar 2021 20:49:39 GMT

Thank you for the reply and information. You asked if there was any reason why I would not want the property to qualify for the Qualified Business Deduction. The only reason I did not ask for it was I thought I did not qualify because I did not spend 250 hours actively managing it.

Based on your reply that is not true as long as I meet the criteria you provided under De Minimis Safe Harbor Election. I now plan to elect to use the deduction.

I would appreciate your confirmation of my understanding of the rule and your response.

Re: Rental Income Qualified Business Deduction

ColeenD3 — Mon, 15 Mar 2021 21:07:50 GMT

De Minimis Safe Harbor Election is used to expense assets. You must mean Safe Harbor 199A.

Yes.

On Tuesday, September 24, 2019, the Treasury Department (“Treasury”) and the Internal Revenue Service (the “IRS”) released Revenue Procedure 2019-38 (“Rev. Proc. 2019-38”) that provides a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of section 199A of the Internal Revenue Code (the “Code”). Rev. Proc. 2019-38 finalized, with certain modifications, a proposed version of a revenue procedure containing such a safe harbor in Notice 2019-07, 2019-09 IRB 740. The safe harbor in Rev. Proc. 2019-38 (and previously in Notice 2019-07) was created out of Treasury and the IRS’s awareness of the uncertainty that certain taxpayers had regarding whether an interest in rental real estate rises to the level of a trade or business for purposes of section 199A, which stems from the Section 199A treasury regulations generally adopting the facts and circumstances trade or business test under section 162.