The Rental Real Estate Safe Harbor election under Revenue Procedure 2019-38 allows eligible rental property owners to treat a rental real estate enterprise as a qualified trade or business for purposes of the Qualified Business Income (QBI) deduction under Section 199A. If you qualify, you may be eligible for a QBI deduction of up to 20% of your qualified business income, which can reduce your taxable income.
To qualify for the Safe Harbor election, taxpayers generally must:
- Maintain separate books and records for each rental real estate enterprise.
- Perform at least 250 hours of qualifying rental services each year (or meet the applicable requirements for older rental enterprises).
- Keep contemporaneous records documenting the services performed, who performed them, and when they were performed.
- Meet all other requirements outlined in Revenue Procedure 2019-38.
In addition, the IRS requires a signed Safe Harbor statement to be attached to the tax return for each year the election is made.
Entering the Safe Harbor Election in the Program
To enter the Safe Harbor election for a Schedule E rental activity:
- Select Federal.
- Select Income (Select My Forms).
- Select Profit or Loss From Rentals and Royalties (Schedule E).
- Enter your rental property income and expense information and select Continue.
- From the Schedule E Rentals and Royalties menu, select Begin next to Qualified Business Income Deduction.
- Complete the Qualified Business Income section:
- Enter any necessary Qualified Business Income adjustments. Any amount entered will increase or decrease the QBI amount calculated from your Schedule E activity.
- Select the option indicating you want to use the Schedule E amounts for the QBI deduction calculation.
- From the available options, choose "Electing Rev. Proc. 2019-38 Rental Safe Harbor."
- Select Continue to save your entry.
Important: Safe Harbor Election Requires a Signed Statement
The Safe Harbor election is made by attaching a signed statement to your tax return. Because the election requires a signed attachment, you may need to mail your federal return to the IRS rather than electronically file it. Before filing, review your return carefully and verify that the Safe Harbor election statement is included.
Printing Your Return
When you're ready to file:
- Complete all tax return entries.
- Navigate to the Summary/Print section from the left-side menu.
- Download or print a copy of your tax return PDF.
- Review the included Safe Harbor election statement.
- Sign and date the statement where required.
Keep a copy of the signed return and election statement with your tax records.
Where Do I Mail My Return?
The IRS mailing address depends on:
- The state where you live
- Whether a payment is included with the return
Refer to the IRS "Where to File" instructions for the correct federal mailing address.
If you are also filing a state return, the appropriate state mailing address is generally printed with your state filing instructions.