Section 199A Rental real estate safe harbor and aggregation

[Higgins]

1 When aggregating multiple properties under section 199A Rental real estate safe harbor statement, does the section 199A safe harbor statement(s) require a signature for each property to be sent in PDF format in the e-file?

2 I noticed that the required “Description of aggregated business and explanation of how they are allowed to be aggregated” , the use of the term “property” must be added to the list of factors that supports aggregation; such as, for example (one of the five points would read) :”The same person or group of persons, directly or by attribution under Sections 267(b) or 707(b), owns 50 percent or more of each trade or business or property to be aggregated, meaning in the case of such trades or businesses owned by an S corporation, 50 percent or more of the issued and outstanding shares of the corporation, or, in the case of such trades or businesses or properties owned by a partnership, 50 percent or more of the capital or profits in the partnership.” Is this correct language for rental real estate aggregations?

3 Is the following required to be attached to a Form 1040 tax return for rental real estate aggregations:
- A description of each trade or business or property.
- The name and EIN of each entity in which a trade or business or property is operated.
- Information identifying any trade or business that was formed, ceased operations, was acquired, or was disposed of during the taxable year.
- Information identifying any aggregated trade or business or property of an RPE in which the RPE holds an ownership interest.
- Such other information as the Commissioner may require in forms, instructions, or other published guidance.

[IntuitJim]

Mark, thanks for joining community! I'll tackle each of your questions separately. 

1) No, 1 signature claiming the Safe Harbor that the ENTERPRISE qualifies, not each property. Lacerte will generate the SH for signature. Scroll down here for instructions. https://accountants-community.intuit.com/articles/1797483&src=51247

2) Not necessarily. You are reading the guidance to aggregate separate QBI activities (like a Sch C, an S Corp, Rental, etc), and not necessarily rental properties. If you are using the SH for rentals, likely you are aggregating all the rentals as a single QBI activity. Only if you aggregate the Rental Activity with other QBI Activities, would you include an Aggregation schedule. However, if you are not treating all rentals as a single QBI Activity, then you may want to Aggregate for QBI purposes, and then remember that election is binding for future years. 

3) Yes, the Aggregation schedule must include the items you list. Lacerte includes them in the Aggregation worksheet.

Hope this helps. 

[kytaxgeeks]

So, from your answer 2), do you mean if only grouping multiple rentals into one retal real estate enterprise, there is no such description required to type on the schedule B - Aggregation of business opertations worksheet (on Lacerte worksheet) and actually no need to include an Aggregation schedule at all with the tax return?

[TaxMe]

How to generate 1 ("one") sh statement for mult sch e's?

[IntuitJim]

Short answer is, you can't create 1 Safe Harbor statement for multiple Schedule E rental properties. Lacerte will create a Safe Harbor statement for each rental real estate activity that you check the Safe Harbor box under the QBI section. The Safe Harbor Statement is a sample provided because users requested it. It does not e-file with your return.  For the election to be valid, the taxpayer must sign the  statement(s) and then you scan and attach to the PDF the e-filed return. Since there isn't specific guidance, you could a) have your taxpayer sign 1 statement and throw out the additional statements (you may want to modify the description to include 'all rental properties') or b) have the taxpayer sign multiple statements and scan them back into 1 PDF to attach.  

I suspect this may change in future years as Treasury simplifies and clarifies the regs- we'll see. 

[Bertha Navarro]

Would it still be considered one enterprise if two of the rental properties are reported on schedule E and the rest are reported through a K-1? The rentals on the k-1 are Multi-family Residence and the ones on Schedule E are Single Family Residence. Or would the rentals on the k-1 be treated as a separate enterprise, therefore needing its own safe harbor statement? The K-1 lists the rental income as Section199A income.

[loricpa100]

Do we need to still check the box on ALL the properties?  I can then get one outside statement signed to attach to the efile.  This client has 8 rentals - so do not want to give them 8 elections, or misguide the IRS that they have 250 hours each.  The Aggregation statement is in there and correct.  Just wnat to be sure these will not be with the return - or may uncheck the boxes.  Unsure how best to proceed.

[nnk13]

With 2 commercial rentals owned by substantially the same group of people (my client owns 20% of one, and 14% of another, could you give me some guidance on the aggregation reason I would file?  I've never done an aggregation before.  Thank you.

[IntuitJim]

loricpa100    I'm not aware of specific guidance. For the first year, it is probably safer to file elections for each of the Schedule E RRE and the K-1 RRE separately. 

[IntuitJim]

nnk13, if your taxpayer is over the income limits and subject to the Wages Limit/ UBIA limits, and some QBI activities are being limited, then in certain cases, aggregating activities can result in a larger total QBI deduction.  If taxpayer is below the income limit, there probably is not a good reason to aggregate. 

In general, a taxpayer can aggregate businesses only if the five aggregation requirements listed below are satisfied:

1. The same person or group of persons directly or indirectly owns 50% or more of each business to be aggregated. For businesses operated by an S corporation, that means owning 50% or more of the issued and outstanding shares. For businesses operated by partnerships (including LLCs treated as partnerships for tax purposes), that means owning 50% or more of the capital or profits interests. For purposes of applying the 50% ownership rule, a taxpayer is also considered to own the interest in each business that’s owned directly or indirectly by his or her spouse, children, grandchildren or parents.
2. The preceding 50% ownership picture exists for a majority of the tax year in which the items for each business to be aggregated are included in the taxpayer’s income.
3. All the tax items attributable to each business to be aggregated are reported on returns with the same tax year end.
4. None of the businesses to be aggregated is a specified service business. Income from a specified service business generally doesn’t count as QBI. The service business disallowance rule is phased in over the same taxable income ranges that apply to the limitations based on W-2 wages and the UBIA of qualified property.
5. The businesses to be aggregated must satisfy at least two of the following three requirements:
   • The businesses provide products and services that are the same or customarily offered together (for example, a gas station and a car wash).
   • The businesses share facilities or significant centralized business elements (such as personnel, accounting, legal, manufacturing, purchasing, human resources or information technology).
   • The businesses are operated in coordination with or in reliance on each other. (For example, they have supply chain interdependencies.)

Good luck!