The Safe Harbor election for rental real estate under Revenue Procedure 2019-38 allows eligible taxpayers to treat their rental activity as a qualified trade or business for purposes of claiming the Qualified Business Income (QBI) deduction under Section 199A. By meeting specific criteria such as maintaining separate books and records, performing at least 250 hours of rental services annually, and keeping detailed logs of those services taxpayers can elect this Safe Harbor. The election is made by attaching a signed statement to the tax return for the year in which the Safe Harbor is claimed. This provision provides a streamlined path for rental property owners to benefit from the QBI deduction, which may reduce taxable income by up to 20%.
To enter the Safe Harbor election on the Schedule E, follow the steps below:
- Federal
- Income (Select my forms)
- Profit or Loss from Rentals and Royalties (reported on Schedule E)
- Enter your Schedule E Rent and Royalty information and select continue
- On the Schedule E Rentals and Royalties menu select Begin on Qualified Business Income Deduction
- Enter the Qualified Business Income Deduction (please note that any amount entered here will add or subtract from the amount calculated on your Schedule E)
- Select the option to use the amounts for the QBI Deduction
- Select the option "Electing Rev. Proc. 2019-38 Rental Safe Harbor" in the drop down and then select continue to save the entry
If you elect the Safe Harbor for the tax year, you will need to paper file your return. Once you have completed all of your entries and are ready to file your return, you can access the PDF from the Summary/Print page from the left side menu and select to print your PDF. You will need to print your return which will include the Safe Harbor election page which you will need to sign and date.
For the IRS mailing address based on the state in which you live, please click here. If you are also filing a state return, the state mailing address is printed on the state returns.