Unable to E-file due to QBI Rental Real Estate Safe Harbor Statement

[jgp2020]

Hi,

Hope some one can help with this issue. I have a few 1099-DIV forms where I entered some very small values (total $16) in Box5 which resulted in a $3 QBI Deduction in 1040 Box 13. It looks like because of this I have to include Form 8995 and Safe Harbor statement and do a print filing instead of e-file all because of this $3 deduction. Is there a proper way to forego this small $3 deduction in Turbotax such that it will let me do an e-File without the hassle of print and mail?

Thanks,

JGP

[jgp2020 · Accepted solution]

Also didn't help that I ran into the same issue where it pointed to a source of a non-existent Schedule K-1 same as in this post.

[MaryM428 · Accepted solution]

The IRS requires a "manually signed and dated" safe harbor election statement for rental activities.   That Rental Real Estate Enterprise Statement is the "safe harbor" statement for your combined (aggregated) rental properties. 

Unfortunately, TurboTax does not support a PDF attachment of a signed safe harbor election. 

As a result, you are required to print and mail your tax return in order to submit the signed and dated "safe harbor" statement required by the IRS.

[Zatat]

Is this new for tax year 2020?  I had a QBI in 2019 and could E-file.

Thank you.

[Irene2805]

Yes - It was announced in September 2019:  IRS finalizes safe harbor to allow rental real estate to qualify as a business for qualified busines...

@Zatat

[Zatat]

So was it required when filing 2019 tax return?  If so, I could still e-file my 2019 tax return.  Thank you,.

[MaryM428]

The rule was in effect for 2019 filing.  If your 2019 tax return included a Rental Activity Safe Harbor Statement, that statement had to be signed and dated and included with a "printed and mailed" tax return. TurboTax could not attach a PDF for the Rental Activity Safe Harbor Statement to an e-filed 2019 tax return.

To remove the safe harbor:

In TurboTax Online, delete by going to the left menu, Tax Tools. Select Tools and Delete a Form. Scroll to find Section 1.263(a)-1(f) De Minimis Safe Harbor Election and Delete Form.

If you are in TurboTax CD/Download, go to forms mode and double click Open Form. In the search box, type election, scroll down to select De Minimis Safe Harbor Election. When it opens, uncheck the box.

  If the form comes back up, go through your interview and see if it asks a question about accepting safe harbor and answer No to that question.

The safe harbor is a way to report expenditures of less than $2500 as expenses, rather than improvements.  If is used for small businesses and real estate rentals.

[edited 2/20/2021 | 2:40 pm PST]

[Zatat]

Thank you so much for your reply.  I am still confused.  In 2019 I did get the Qualified Business deduction but there wasn't the Safe Harbor Statement.  If the Safe Harbor Statement is removed then I wouldn't get the deduction?  When I am in the Easy Step format, if I say "no" to the Safe Harbor it removes my deduction.  

[JeffreyR77]

That is correct.  If you do not make the Safe Harbor Statement, you will not get the safe harbor deduction.

[Zatat]

Thank you.  I guess I will have to mail in my tax return then.  I just don't understand how I was able to e-file my 2019 tax return with the QBI deduction.  It is a mystery.

[Zatat]

I opened Turbotax 2019.  Under easy step, I did not select Safe Harbor.  There is a note at the bottom that says "you may still qualify for a QBI deduction".  Sure enough, a QBI deduction was calculated even though I did not select Safe Harbor.  On TurboTax 2020, if I don't select Safe Harbor, the deduction is not calculated.  It is hard to understand that from year to year the results are different.  

[adegus]

Where in the IRS code or instructions does it say it has to be manually signed? I checked IRS.gov and it does not say that. It merely refers to attaching a statement. Also, it should reference the property address (which the Turbo Tax generated statement does not do). 

[Carl]

I just don't understand how I was able to e-file my 2019 tax return with the QBI deduction.

See Revenue Procedure 2019-38 at https://www.irs.gov/pub/irs-drop/rp-19-38.pdf 

Section 4 states, "This revenue procedure applies to taxable year ending after Dec 31, 2017"

So for all I know, if you did take the QBI on the 2019 tax return, you "may" get an "audit by mail" on it in the future where you're asked to provide a signed statement. But I seriously doubt that will happen. Still, never say never. The fact the IRS accepted your 2019 tax return via e-file without a signed statement is an IRS issue, not a TurboTax issue. It's the IRS that accepted your 2019 tax return "as filed", and not Turbotax.

Where in the IRS code or instructions does it say it has to be manually signed?

Section3.03(D) states, "The taxpayer or RPE attaches a statement to a timely filed original return (or an amended return for the 2018 taxable year only) for each taxable year in which the taxpayer or RPE relies on safe harbor."

[adegus]

NOWHERE in the IRS document does it say it has to be "manually signed" (or even "signed" for that matter  but of course it's assumed somewhere therein it would be).  Therefore, a separate unsigned statement page is FINE,  and the entire return WITH AN E-SIGNATURE SHOULD BE POSSIBLE Turbo Tax.  What a shame that so many of us are paying the fee for this online service, only to be told we have to print and mail our Federal and State returns. Turbo Tax: PLEASE FIX THIS WITH AN UPDATE. THANK YOU!

[Carl]

You're preaching to the choir, as I am not in disagreement to you one bit. Take note that I am not a TurboTax employee or affiliated with Intuit in any way, shape, form or fashion.