Qualified Business Income Deduction Smart Worksheet How to enter for Rev Proc 2019-38

[Buffytaxpreparer]

Hello,

What are the correct software entry steps to complete the Qualified Business Income Deduction Smart Worksheet for Schedule E
Client has approximately fifty Schedule E worksheets of qualifying properties, a mix of residential and commercial.

Thanks

[hedgeslaw]

In general , rental activities are "passive" and are not normally allowed a 199A deduction, however Rev. Proc. 2019-38 is an exception and allows the 199A deduction if conditions are met. 

Rev. Proc. 2019-38 refers to qualifications of becoming a "Rental Enterprise" and thereby being eligible for the Safe Harbor 199A QBI deduction.

Under Rev. Proc. 2019-38 each property can be treated as a single enterprise or they can be grouped as a single activity for this purpose. There are other grouping possibilities - review the Rev. Proc. The grouping election must be disclosed on the tax return when making  the election and additions, subtractions and future years are affected by the original election. NOTE: This grouping election is not necessarily the same grouping made under Sec 469(c)(7)(A) for material participation and the passive loss rules.

If the taxpayer makes the Safe Harbor Rental Enterprise election on a timely filed tax return, owns the property directly, through a disregarded entity (and certain other types of ownership) and if taxpayer meets the 250 hour and recordkeeping requirements provided in the Rev. Proc., the taxpayer gets the 199A deduction. The election is made annually and grouping cannot be changed from year to year except under special situations. Each group must meet the 250 hours, recordkeeping and other requirements

Failure to satisfy the requirements of this safe harbor does not preclude a taxpayer or the Service from otherwise establishing that an interest in rental real estate is a trade or business for purposes of section 199A. For example, they may qualify as a 'trade or business" if their business is operated continuously and regularly.

To trigger ProSeries to compute the 199A deduction, after entering your rental income and deductions on the 1040 Schedule E Wks, scroll down until you come to the 199A Smart Worksheet area. Check the box to make the Rev Proc 2019-38 election and if a part of a group, enter a group number and then click to link the property to a QBI Enterprise worksheet. You don't need to complete any other lines on that smart worksheet unless taxpayer's high income causes a reduction in the QBI deduction. The Rental Enterprise statement is not supported for efiling, so print it out and attach as a PDF.

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