Understanding rental real estate safe harbor election for Qualified Business Income (QBI)

This article will assist you with understanding the QBI rental real estate safe harbor election, along with how it applies to Lacerte and ProConnect Tax functionality.

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Rental safe harbor

The Tax Cuts and Jobs Act established the Qualified Business Income (QBI) Deduction for sole proprietorships, as well as K-1 activities from partnerships, s-corporations, trusts, or estates.

IRS Notice 2019-07 established a new safe harbor for rental real estate. Individuals and entities owning rental real estate can treat a rental real estate enterprise as a trade or business for QBI purposes if they meet certain requirements:

• Beginning on January 1, 2019, the taxpayer must maintain records with details about the services, including hours, description, dates and who performed the services. 
• Maintenance of separate books and records to report income and expenses of each rental real estate enterprise.
• The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.
• For tax years beginning before January 1, 2023, 250 or more hours of rental services must be performed each year.

Refer to IRS News Release IR-2019-158 for more information.

A rental real estate enterprise is an interest (owned directly or through an entity) in real property held for the production of rental income and may consist of an interest in multiple properties. If an enterprise fails to meet the safe harbor, it may still qualify for QBI as long as trade or business standards are met.

Program-specific details

ProConnect Tax:

• Qualified Business Income - Rental Real Estate Activities

Lacerte:

• Qualified Business Income - Rental Real Estate Activities
• Lacerte Aggregation of Business Operations Section 1.199A-4