Error Notice to "Check box if Rental is part of Enterprise"_Rev Proc 2019-38

[KMJK]

Hello,

I'm currently working in TT Business 2024. Upon checking for errors - I receive an error on 8825 Worksheet.

I see the verbiage, "Check this box if this rental is part of a Rental Real Estate Enterprise described in Rev Proc 2019-38"...............  The check box is RED indicating that it wants me to check it.

Then below that is says "If rental is part of a Rev Proc 2019-38 enterprise, enter group # (see Tax Help). There is a number "1" populated in the box next to that statement.  As far as the "see tax help", not sure where I'm suppose to see the help at.

Questions:

Where do I look for the "Tax Help" that it is referring to?

If I click on "Quick Zoom" that is next to the words "See Tax Help", then it brings me up to the Section 199A form to sign for the Real Estate Enterprise - with all the qualifications listed.

What triggered that second box to populate with a number (in my case number "1")????

I can not find where it came from/what I could have answered that triggered that to populate with a "1".  If I remove it, then the red shaded box, that I mentioned above, is no longer required, BUT.....I do not want to remove the number 1, cause I don't know why it is there. Turbo Tax is just telling me to check the red box to remove the error.

After searching and reading online about the RE Enterprise / Rev Proc 2019-38, that looks like it came from the IRS, I am still not certain what benefit it serves. Can someone PLEASE summarize to make sense about what this is. It does seem that it does need to be elected each year, is that correct? Is there a benefit as far as a tax deduction?

Thanks for any help.......I have spent more hours than I know trying to figure this out, and am completely exhausted.

[Shannon B1]

If you only have one rental property, you can't qualify for the Safe Harbor as a Real Estate Enterprise. A Real Estate Enterprise is when several properties with the same owners are reported together to qualify for the QBI deduction.

However, you may still qualify for QBI by proving that your rental activity is a trade or business.

The rule for proving you are a trade or business:

• Profit Motive: The rental activity should be done with the goal of making a profit.
• Regular and Continuous Activity: The taxpayer must regularly and consistently perform significant tasks related to the rental property.
• Ordinary and Necessary Expenses: The rental activity must involve typical and necessary expenses for running the business.

To qualify under the Safe Harbor (Rev Proc 2019-38), you must meet these criteria:

• Separate Books and Records: Maintain separate books and records for the rental activity.
• 250+ Hours of Service: Spend at least 250 hours on rental services for the specific property.
• Not a Residence: The property is not used as a residence at any time during the year.
• Not a Triple Net Lease: The property is not rented under a triple net lease.
• Not Rented to a Commonly Controlled Business: The property is not rented to a business you control.
• For Rental Estate Enterprise:  All properties must be of the same type or part of a single, mixed-use building with both residential and commercial units. 

Edited

@KMJK

[KMJK]

Thanks for the info.

1 have one rental under a LLC and 3 others under our names.

I'm still confused about what triggered the box to auto populate with the number 1 - which activated the check box.

Any thoughts on that?

[DaveF1006 · Accepted solution]

It depends. The number "1" in that box most likely comes from information you've entered elsewhere in your return, particularly when dealing with Section 199A (Qualified Business Income Deduction). When the software detects that your rental property might qualify for that deduction as part of a Rental Real Estate Enterprise under Rev Proc 2019-38, it will auto-populate this field. The number "1" typically refers to a group number within that enterprise, which is the property that is owned by the LLC. 

TurboTax is essentially trying to determine if your property is part of a Qualified Real Estate Enterprise and if it should be treated for purposes of Section 199A. This could be populated if you:

• Entered rental properties under an enterprise (like a grouping of rental activities) that fits the Rev Proc guidelines.
• Provided information indicating that your rental activities are part of a real estate enterprise that is eligible for Section 199A treatment.

If you’re unsure why the number "1" is there, and you don’t think your rental is part of a Rev Proc 2019-38 enterprise, then you can likely clear the number and proceed. However, if you are confident that your rental qualifies for that treatment or are unsure whether it does, keeping the number is probably the safest option. TurboTax is flagging it as part of the process for claiming the Qualified Business Income Deduction.

Important note: The red shaded box indicating a required checkbox typically means the system wants you to confirm whether the rental is part of a Rental Real Estate Enterprise.  

My suggestion is for you to check the box and leave the number "1" in there. Check line 13 on your 1040 to see if there is a QBI deduction listed in that line. See if this will clear up your error messages and red flags. Let us know if this works.