QBI & Safe Harbor

[MG26]

I've done a lot of reading and still a bit confused.

Last year it looks like I selected QBI but not safe harbor as I was able to file electronically.

I have one rental property. I am not a real estate professional. This property does make a profit.

I've done a ton of reading and there's so many differing opinions as to whether I really qualify. I don't personally spend 250 hours on the townhouse property but I do pay the association fee that pays for management and  contractors for the exterior maintenance which surely adds up to many hours. I spend occasional time managing inside repairs. I don't know how I'd come up with the detailed hours the management company and contractors have spent on my particular unit.

I suppose I will start sending 1099s where applicable. I thought that only applied to being real estate professional which I am not. I now think it applies to being a business. So I don't know if I'd be red flagged for seemingly changing circumstances.  Also may be red flagged for having claimed QBI last year and maybe not this year?

I also don't know what the qualifying difference is between safe harbor and QBI as QBI seems to require the 250 hours documented as well.

What is the definition of and why do they offer a safe harbor? (Laymans terms, not the IRS definition of this rental safe harbor, I've read it a few times already)

Thank you for your time.

[DaveF1006]

It depends. According to this IRS link, the following requirements must be met to qualify for this safe harbor for the QBI deduction.

• Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
• For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
• The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
• The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.

There is a question in the Rental property interview that asks if you qualify for this deduction in accordance with the requirements listed above. If you answer yes, there will be a statement generated in your return that reflects the last bullet point. Just be sure to answer this question truthfully.

[jds24]

I checked the Box No that I did not qualify and I still got the form. How do I eliminate it?

[MG26]

It's best to start a new question/discussion.

[AmeliesUncle]

QBI is for a "Trade or Business".  Unfortunately, there is no clear-cut definition of "Trade or Business", which is why the IRS created the 250 hour Safe Harbor election.  The IRS created that election so people that qualify and confidently claim QBI, and not worry about if they will be audited about it.  

As you may have read, the easy version of the QBI Safe Harbor election is that clearly keep track or all income and expenses for that separate property, and if the TOTAL hours (spent by you, contractors, management companies, etc.) spent towards that property is 250 or more hours, it qualifies for the Safe Harbor election.  If if you only have one property, it seems quite unlikely that 250 hours would have been spent on it.

If you claimed QBI without making the election, you are claiming it is a "Trade or Business" according to Section 162 of the Tax Code.  As I mentioned before, there is no clear-cut definition of that.  However, if you only have one property, it is much less likely to qualify (but not impossible).

If you claim QBI without the Safe Harbor election, yes, you are required to issue 1099s (when applicable) because you are stating it is a "Trade or Business", per Section 162 of the Tax Code.  There are penalties for not issuing them or issuing them late.