Can I group our rentals in Safe Harbor as a Real Estate Enterprise?

[charjean47]

My husband and I manage 7 rentals.  Two rentals are in his name and his son's.  We file a joint return and file on those two properties.  Five of the rental are in my and my husband's name.  So, we file a joint return on all 7 rentals.  May we use a Safe Harbor and include all 7 properties as part of a "real estate enterprise"?  The Premier Turbo Tax Programs asks for the name on each rental as I set them up; do I put husband's name on 2 rentals as I am setting them up and both of our names on the 5 rentals as I am setting them up?  We put in over 250 hours in the group.  Appreciate any help.  Thanks.

[AmyC]

You qualify under the real estate professional rules with the properties. You want to enter  each property separately, 5 jointly owned and 2 of them  in his name. Those 2 will claim half the income and expenses. See Tips on Rental Real Estate Income, Deductions and Recordkeeping.

[charjean47]

I am sorry.  I don't know what you mean by the following statement: Those 2 will claim half the income and expenses. Do you mean my husbands claim half and his son claims half?  We have not been doing that.  My husband and I file jointly claiming 100% of income and expenses of the two properties owned by him and his son.  My husband gave his son full control over one of the properties o 01/01/2021 and the son will claim that property on his future taxes.  The son will have full possession of the other property when his father passes.  My husband's son has not claimed any income or expenses on these properties in the past.

May I group all 7 under one Enterprise on my and my husband's 2020 tax return?  Then, I will have 5 in both of our names and 2 in his name only, right?

May I group only 6 for 2021 because of the one given to his son?  Will it be that difficult to not include this property in the Safe Harbor group made in 2020?

Thanks again.

Thank you for your help and understanding.

[charjean47]

I appreciate your help.

[DMarkM1 · Accepted solution]

Yes, for the safe harbor Qualified Business Income Deduction you can group all seven, since there is an interest in all seven, into one enterprise.  Also there will be no problem not including a property in later years since the safe harbor election is an annual election.  If you dispose of your interest in a property it will no longer be on your return and thus not in the enterprise. 

One note, if you add similar rental properties to your inventory and you have elected to group properties for the safe harbor, the newly acquired properties are automatically part of the group.  Once you elect to group properties you must continue to group in future years. 

You are also correct in your interpretation of Amyc's comment.  You would enter each property with 5 being 100% yours (you and spouse) and 2 being only 50% yours (spouse). 

However, when entering your income and expenses for those 2 properties, you have the option to enter your actual numbers for those items.  The other party (son) would enter his share of income/expenses on his return as (if) applicable.  The percentage only comes into play if you want to enter the total amounts and have TurboTax do the math for your share on your return.  

Here is a link to the IRS revenue procedure for more information.