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Schedule E rental real estate and QBI

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Level 2

Any news yet on what is going on with the schedule E rental real estate filers and QBI deduction?

1 Solution

Accepted Solutions
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Employee
Employee

The IRS provided some guidance in Publication 535:


The ownership and rental of real property may constitute a trade or business. Notice 2019-07 provides a safe harbor under which rental real estate enterprise will be treated as a trade or business for purposes of the QBI deduction. For more information, on the safe harbor see Notice 2019-07. Rental real estate that does not meet the requirements of the safe harbor may still be treated as a trade or business for purposes of the QBI deduction if it is a section 162 trade or business.
In addition, the rental or licensing of property to a commonly controlled trade or business operated by an individual or a pass-through entity is considered a trade or business under section 199A.
 

Based on these instructions, Schedule E rentals are not included as Qualified Business Income, unless the activity is marked as Land or Self-Rental.  However, Lacerte and ProConnect Tax Online do provide ways to indicate Rental Real Estate income should be included in this calculation.

For more info on Safe Harbor Election, expected for release on 3/6, click here: Safe Harbor Election for Rentals- 250 hour rule

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5 Replies 5
Highlighted
Employee
Employee

The IRS provided some guidance in Publication 535:


The ownership and rental of real property may constitute a trade or business. Notice 2019-07 provides a safe harbor under which rental real estate enterprise will be treated as a trade or business for purposes of the QBI deduction. For more information, on the safe harbor see Notice 2019-07. Rental real estate that does not meet the requirements of the safe harbor may still be treated as a trade or business for purposes of the QBI deduction if it is a section 162 trade or business.
In addition, the rental or licensing of property to a commonly controlled trade or business operated by an individual or a pass-through entity is considered a trade or business under section 199A.
 

Based on these instructions, Schedule E rentals are not included as Qualified Business Income, unless the activity is marked as Land or Self-Rental.  However, Lacerte and ProConnect Tax Online do provide ways to indicate Rental Real Estate income should be included in this calculation.

For more info on Safe Harbor Election, expected for release on 3/6, click here: Safe Harbor Election for Rentals- 250 hour rule

View solution in original post

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Level 2

Hi Katie my name is Frank and was wondering if you can be of help to me.  I am bit confused on how to treat 199a on schedule E for house rental.  Client has a 2 family home of which 1/2 or 50% is rented the entire 2018 tax year. Can the profit on the rental QBI deduction, if so how.  Can they qualify Safe Harbor?

Also, the article on the Safe Harbor states the property was not used as a residence for any part of the year.  Does this mean the portion of the home that was rented.

And the 250 hour rental services does this mean the property was rented for at least that minimum time.

Please get back and thank you.

 

 

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Level 15

The code section cited in Notice 2019-07 in reference to the phrase "used by the taxpayer as a residence" is §280A.  The answer to your question lies in whether the property was a vacation home.

The 250-hour requirement is in relation to the number of hours the taxpayer, his/her employee, independent contractors, and agent must have clocked in for rental services as defined in Notice 2019-07.  It's not about the number of hours the property was let out.

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Still an AllStar
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Level 2

Sorry forgot to thank you itonewbie and all others.

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Level 2

forgot to thank you for the help.

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