Tax Year Prior to 2020: Unable to efile due to QBI Deduction Worksheet Schedule B

[sailworkless0]

@ReneeM7122 

Thanks for the input.

Not sure where to get this question answered.

Is there any downside to NOT claiming safe harbor even though I meet requirements for it? I'll still take QBI deductions. If I get challenged on taking the deductions, I can prove I meet all requirements for safe harbor, I just didn't take it because of filing issue. Since I meet all safe harbor requirements, my rentals qualify.

I sure would sleep better if TT would just make this work. Other vendors do.

[DougM]

Last time around, if I recall correctly, they did eventually fix it, but it took ages...

I don't want to delay filing this year, and filing on paper is just nuts nowadays.  This is a serious, non-snarky question: Can anyone suggest another tax software vendor that can likely handle this and can read in previous year's TT information? I'm ok with buying more software to just get this done right, and hopefully not have to deal with it again.

[Prethen]

I'm planning on attempting to file my taxes this weekend. I did not explicitly declare Safe Harbor and I'm hoping like heck I can submit without issue. If not, I hope there's just an unnecessary form I need to remove and then submit. Like many of you, I'm extremely disappointed that the folks at TurboTax have seem to dropped the ball on this one again for a lot of filers.

[sailworkless0]

@Prethen 

Are you still manually taking the QBI deduction, just not declaring safe harbor?

[DawnC]

If your rental activity qualifies as a business activity, you don't need to make the safe harbor election, see #3 below.  

Note that for rental activities not conducted by a real estate professional or not rented to a related party, a rental activity can fall into three categories for qualified business income deduction QBID:

1. A rental activity not eligible for the QBID because it does not meet the safe harbor criteria and is otherwise not considered a trade or business;
2. A rental activity eligible for the QBID because it does meet the safe harbor criteria (Safe Harbor statement required); and,
3. A rental activity eligible for the QBID because it is considered a trade or business by the owner (Safe Harbor statement not required).   In this case, you meet the real estate professional definition and work more than 750 hours in your business each year.   Please this executive summary regarding the Real Estate Professional status.  Real Estate Pros use Schedule C and no safe harbor is used.   But if you don't qualify to be a real estate professional, you use Schedule E, but the safe harbor provides the additional 500 hours needed to qualify for the QBI deduction.  So, if the rentals are on Schedule C, you don't need the safe harbor and if they are on Schedule E, you need it if you want the QBI deduction.   

As far as aggregating - - Taxpayers can treat each rental real estate property as a stand-alone enterprise or group together similar properties and treat each group as an enterprise. Commercial and residential real estate may not be a part of the same rental real estate enterprise. Taxpayers must be consistent with this treatment unless there is a significant change in facts and circumstances.

@sailworkless0  

[Stupidasur3]

I am extremely disappointed that now for the 3rd year, I will be unable to efile my return using TurboTax, all because I am taking the QBI deduction.  There is no doubt that I qualify.  Having to file by mail, because the IRS has been behind by millions and millions of returns due to Covid, will quite likely keep me from getting an SBA loan for my business that had $100,000's of thousands of dollars in damages from Hurricane Sally.  I have fought tooth and nail, even having to go through a Tax Advocate to get my prior returns processed, to meet SBA deadlines.  If the SBA requires that my 2020 tax return be submitted as part of my loan qualification requirements, the delay by not being able to efile and having to file by paper, will most likely keep me from getting a loan.  I will say, I have used TurboTax for almost 20 years, and if this is how business will continue to be handled by Intuit, I guess you have lost a long-time customer.

[DougM]

DawnC

Can you please find out if/when this efile problem will be fixed.

doug

[Prethen]

I fortunately discovered that I was able to e-file without issue this time. I didn't need to blow-out any forms first. I did QBI but did not declare Safe Harbor (same as previous year in which I did have issues).

[DM26]

DawnC

I am hoping you can provide some answers.

First, you are labeled as “Employee Tax Expert”.  Does this mean that you actually work for Intuit?  Also I see that you have provided tax information some of which may influence tax preparation decisions for some members on this forum. Since you are labeled as a Tax Expert does this mean you are you a CPA or a degreed accountant with further training on individual tax preparation?

I feel that some of the information you have provided is not all inclusive and could lead to poor decisions for some.  My understanding is:

The 20% Qualified Business Income (QBI) deduction under Section 199A is only eligible for “QUALIFIED” business.  The IRS lists business types that are qualified automatically.  RENTAL PROPERTY ACTIVITY  is generally NOT a QUALIFIED BUSINESS ACTIVITY.  The exception which does not apply to most taxpayers is if you are a Real Estate professional (realtor, etc.) who spends at least 750 hours in the business. The IRS, however, has allowed an exception for non Real Estate professionals with their rental property businesses.  These exceptions fall under SAFE Harbors (IRS notice 2019-07 and Revenue Procedure 2019-38). IRS notice 2019-07 applies to a single property while Revenue Procedure 2019-38 applies to multiple properties if the taxpayer elects to combine all their rental properties in an Enterprise.

When a taxpayer elects to apply the Safe Harbor to their rental(s) this makes their rental business qualify for the QBI deduction. Since income from investments is usually NOT eligible is it important to elect the Safe Harbor. IMPORTANT: In order to elect the Safe Harbor the taxpayer needs to INCLUDE A SIGNED STATEMENT to this effect and include it in their tax return.

In order to elect the Safe Harbor the signed statement must include that all the following are true on the statement:

• 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.

If a taxpayer has several rental properties they must satisfy the 250 hour rule for EACH property unless they aggregate their properties into an Enterprise.  By aggregating they are combining all their rentals into one business enterprise so they don’t have to satisfy the 250 hours of service for each property but instead 250 hours combined for all their properties.  In order to aggregate all rental activities together the taxpayer needs to include Schedule B (Form 8995-A) Aggregation of Business Operations and name each business and/or enterprise that are to be combined on the form.

For those who have decided to just not include the Safe Harbor statement on their tax return, just to be able to efile, are making a poor decision in my opinion.  Again, investment income generally is NOT eligible for the 20% QBI deduction and if the taxpayer does not elect to take the exception (Safe Harbor) the IRS has provided than if audited the 20% deduction will likely be reversed leading to an additional liability with interest and penalty.

Obviously electing the Safe Harbor is the best decision.

Numerous posts have asked whether Intuit will update the software to allow efiling with the Safe Harbor.  Many of us are on hold with filing our tax returns since this question remains unanswered.  I will certainly elect the Safe Harbor with aggregation especially since I own several rental properties.  If I am forced to file on paper I will do so however as I stated in an earlier post this poses issues.  One being that paper filing causes delay but more importantly subjects me to an additional audit risk since the possibility of data input error exists.

Last year we had this same issue but Intuit did finally release an update which allowed us to efile while claiming the Safe Harbor.

PLEASE LET US KNOW IF THE SOFTWARE WILL BE UPDATED TO ALLOW EFILING WITH CLAIMING THE SAFE HARBOR FOR 2020.

[DougM]

   EXACTLY !!!!!!!!!!!!!!!!

I waited last time. Intuit, please let us know what the plan is this year.

[greg71]

Sorry, this is a little off-topic (just a little).

I'm wondering if by stating that rental income is Qualified Business Income and taking the 20% deduction, does that trigger the need to pay Social Security taxes?

I do not file a Schedule C, I've always reported rental income on Schedule E, and therefore don't have to pay Social Security taxes.   I'm afraid if by answering yes, the rental income is a "business" for purposes of the QBID will the IRS say I owe Social Security taxes.  How would I even pay those, since I don't file a Schedule C?

Thanks!

[Irene2805]

Saying that your rental is a "business" for purposes of the QBI does not change the nature of your rental business reported on Schedule E.  QBI will not trigger the need to pay Social Security taxes.

[greg71]

Thanks Irene!  That's great to hear.

Can you post a link to any evidence for that, in case I ever need to back it up?

Thanks!

[SamS1]

IRS Notice 2019-07 sets safe harbor rules for QBI deduction on rental real estate: 

(A) Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;

(B) For taxable years beginning prior to January 1, 2023, 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental enterprise. For taxable years beginning after December 31, 2022, in any three of the five consecutive taxable years that end with the taxable year (or in each year for an enterprise held for less than five years), 250 or more hours of rental services are performed (as described in this revenue procedure) per year with respect to the rental real estate enterprise; and

(C) The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: (i) hours of all services performed; (ii) description of all services performed; (iii) dates on which such services were performed; and (iv) who performed the services. Such 8 records are to be made available for inspection at the request of the IRS. The contemporaneous records requirement will not apply to taxable years beginning prior to January 1, 2019.

Here is a link to IRS Notice 2019-07

[greg71]

Thanks Sam,

I've read the criteria for that safe harbor and the other safe harbor (rp 2019-38) that allows you to combine multiple properties into one "enterprise".

My question was not about the criteria to qualify to take the safe harbor or the QBI Deduction.  I have several rentals, I'm sure I qualify (especially using the second safe harbor).

My question is, if I state that my rental income is Qualified Business Income (e.g. a business) to take the 20% deduction, will I then owe self-employment taxes on the rental income?

If you have any link or document that answers that question, I'd really appreciate it.  Fyi, I called TT two days ago and asked to talk to a CPA or Enrolled Agent.  They said one would call me back within 24 hours. :(

Thanks!