Is it a problem if one of the rentals in the 2020 Safe Harbor Group/Enterprise is removed in 2021?

Yes, you can choose to use the rental properties for the qualified business income deduction (QBID) if you meet the safe harbor requirements.  Once a taxpayer makes this determination regarding the treatment of the rental property, they cannot change it from year to year unless they can demonstrate a significant change in facts and circumstances, and you do make the decision annually based on facts and circumstances and not profit or loss.

• Can I get the QBID for rental income?

The IRS finalized the safe harbor rules for rental properties.

This safe harbor is available for taxpayers who seek to claim the section 199A deduction with respect to a "rental real estate enterprise." Solely for purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held to generate rental or lease income. It may consist of an interest in a single property or interests in multiple properties. The taxpayer or a relevant passthrough entity (RPE) relying on this revenue procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner, such as a limited liability company with a single member.

The following requirements must be met by taxpayers or RPEs to qualify for this safe harbor:

1. Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
2. For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
3. The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
4. The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.

In 2021, your son will have to put this safe harbor to the test and meet the requirements to decide if he is allowed to use QBID on the one property. This could be more difficult for him if he has only one rental property.

The exchange of this property will not change your situation or affect your situation as long as you continue to meet the requirements.

NOTE:  Answer all the questions about qualifying business income (QBI).

To change the answer or review your selections you can use the steps below.

1. Open your TurboTax return > Search (upper right) type rentals > Press enter > Click the Jump to ... link
2. Edit next to your rental activity > Scroll to Qualified Business Income > Edit/Update >
3. Select 'None of the above' on the Real Estate Professional page
4. Continue to the page Do you want to use a safe harbor.... Select your answer' > Continue
5. Select 'Yes' or 'No', on the page  Is this Qualified Business Income?
   • OR

6. Open your TurboTax return > Search (upper right) type Qualified business income deduction  > Press enter > Click the Jump to ... link

7.  Arrive at the QBID section to answer the questions shown above

[Edited: 04/13/2021 | 7:56a PST]