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Calculating qualified business income (QBI) for rental real estate activities in ProConnect Tax

by Intuit•1• Updated a day ago

Want to learn more about QBI Deductions with Multiple Entities?

You can watch our webinar on How to plan for Multiple Business Entity Impacts on the Qualified Business Income Deduction. See here to view the recording.

This article explains why ProConnect Tax may not include rental real estate income in a Qualified Business Income (QBI) calculation and how to identify a property or activity as qualified.

ProConnect Tax doesn't automatically include most Schedule E rentals in QBI calculations due to guidance in IRS Pub. 535 which says rental real estate qualifies for a QBI deduction if it meets the requirements of a safe harbor or is a section 162 trade or business.

The program will calculate QBI for Schedule E activities marked as land, self-rentals, real estate professionals, or as claiming safe harbor. If none of those conditions apply, an override is available to indicate the activity is a qualified trade or business.

  • Notice 2019-07 also provides a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of the QBI deduction.
  1. Under Income in the left-hand menu, select Rental and Royalty Income (Sch E).
  2. Select the appropriate option in the field Type of property (Click on arrow to select from list).
  1. Under Income in the left-hand menu, select Rental and Royalty Income (Sch E).
  2. Scroll down to the General Information section.
  3. Check the box labeled Real estate professional.
  1. Under Income in the left-hand menu, select Rental and Royalty Income (Sch E).
  2. Click on the Qual. Bus. Inc. Deduction section from the dropdown menu in the upper-right corner of the input screen.
  3. Enter a 1 in Business is a qualified trade or business: 1=yes, 2=no [Override].
  1. Under Income in the left-hand menu, select Rental and Royalty Income (Sch E).
  2. Click on the Qual. Bus. Inc. Deduction section from the dropdown menu in the upper-right corner of the input screen.
  3. Enter the correct number in Rental real estate enterprise number if claiming safe harbor.
  4. Enter a 1 in Business is a qualified trade or business: 1=yes, 2=no [Override].

To make this election, you must also attach a signed PDF to the return stating that all qualifications for safe harbor have been met. To attach the PDF:

  1. Under General in the left-hand menu, select Electronic Filing.
  2. Select e-file PDF/Miscellaneous.
  3. Click on e-file Attachment in the upper-right corner of the input screen.
  4. Click on the button Attach PDF and browse to your PDF copy of the signed Safe Harbor Election statement.
  5. Enter a description in the field Description of file.
  6. Using the dropdown in the field Link to form (defaults to main form), input 67 and then select 67=QBI Rental Real Estate Safe Harbor Election Statement.

The PDF must be attached in order to clear the following diagnostic:

"Schedule E #X:  The safe harbor election was claimed for this rental property.  Pursuant to IRS Notice 2019-07, a signed statement PDF must be attached to the return stating that all qualifications for the safe harbor have been met." US - Ref 51860

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