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.

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Future changes for tax year 2026

For tax years beginning after December 31, 2025, the One Big Beautiful Bill act will make changes to the make the QBI deduction permanent and increase the phase-in range. These changes will go into effect in tax year 2026.

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.

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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).

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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.

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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].

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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

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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.