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

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.

To identify a property as land or self-rental

1. Go to Input Return ⮕ Income ⮕  Rental and Royalty Income (Sch E).
2. Select the appropriate option in the field Type of property (Click on arrow to select from list).

To identify a Schedule E activity as real estate professional

1. Go to Input Return ⮕ Income ⮕ Rental and Royalty Income (Sch E).
2. Scroll down to the General Information section.
3. Check the box labeled Real estate professional.

To input a qualified trade or business override

1. Go to Input Return ⮕ Income ⮕ Rental and Royalty Income (Sch E).
2. Select 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].

To claim safe harbor for a Schedule E activity

1. Go to Input Return ⮕ Income ⮕ Rental and Royalty Income (Sch E).
2. Select 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. Go to Input Return ⮕ General ⮕ Electronic Filing.
2. Select e-file PDF/Miscellaneous.
3. Select 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