If you own rental real estate but you’re not the sole owner, maybe you’re in a partnership, an LLC, or you just went in on a beach house with your siblings, then Form 8825 is about to become a regular part of your tax life. This isn’t the form you use for the duplex you own by yourself (that’s Schedule E). This is the form used by partnerships, LLCs, and S-Corporations to report the income and expenses from rental properties they own.
Think of it as Schedule E for pass-through entities. The business entity (like your LLC) collects all the rental activity, reports it on Form 8825, and then passes your share of the profit or loss to you on your Schedule K-1. You then take that K-1 number and put it on your personal Schedule E.
Who Files This
You’ll encounter Form 8825 in two main scenarios:
- You are a partner in a partnership (or member of an LLC taxed as a partnership) that owns rental property. The partnership files Form 1065. The partnership’s rental income and expenses are detailed on Form 8825, which is attached to that 1065.
- You are a shareholder in an S-Corporation that owns rental property. The S-Corp files Form 1120-S. The S-Corp’s rental activity is detailed on Form 8825, attached to that 1120-S.
The whole point is to separate the rental activity from the entity’s other business operations. It gives the IRS (and you) a clean, property-by-property breakdown.
Breaking Down the Form
The form is straightforward but detailed. You fill out a separate column for each individual rental property the entity owns.
For each property, you report:
- Income: Rents received, royalties from mineral interests, and even expenses paid by the tenant (if the tenant pays the property tax directly, that’s considered additional rental income to you).
- Expenses: This is the long list. You’ll recognize all the usual landlord deductions:
- Advertising
- Auto and Travel
- Cleaning and Maintenance
- Commissions (to property managers)
- Insurance
- Legal and Professional Fees
- Management Fees
- Mortgage Interest (but NOT the loan principal)
- Other Interest
- Repairs
- Supplies
- Taxes
- Utilities
- Depreciation (or Depletion)
- Other (security, HOA fees, etc.)
You total up the income, subtract the expenses, and arrive at the Net Income (or Loss) for that property. Then, you add up the net from all properties to get the entity’s total rental real estate income or loss.
Here’s how the money trail works:
- The LLC’s property manager collects $50,000 in rent for the year and pays $30,000 in expenses (mortgage interest, taxes, repairs, depreciation). Net income is $20,000.
- The LLC (filing Form 1065) reports this $20,000 on Form 8825.
- You own a 50% share of the LLC. Your Schedule K-1 from the LLC will show $10,000 of rental real estate income (Box 2).
- You take your K-1, and on your personal Schedule E (Form 1040), you report that $10,000. It flows through to your personal taxable income.
Key Takeaway: You never attach Form 8825 to your personal 1040. It stays with the business return. Your only proof is the K-1.
Common Pitfalls
- Depreciation is Calculated at the Entity Level: The partnership or S-Corp calculates the depreciation deduction for the building and any assets. You don’t calculate your own share separately on your personal return. You get the net number from the K-1.
- Passive Activity Loss Rules Still Apply: Just because the income passes through a partnership doesn’t change the passive nature of rental income for most owners. If you are not a “real estate professional,” losses may be suspended and carried forward.
- At-Risk Rules and Basis Limits Also Apply: Your ability to deduct your share of losses is limited by your “at-risk” amount and your “basis” in the partnership/LLC. You can have a loss on Form 8825, get a K-1 with a loss, but still not be able to deduct it on your personal return if you don’t have sufficient basis.
- Multiple Members with Different Ownership Percentages: The form is prepared for 100% of the property’s activity. The K-1s then split it up according to the ownership agreement, which may not be an even 50/50 split.
Frequently Asked Questions (FAQ)
My spouse and I own a rental condo in just our names. Do we use Form 8825?
No. Since you own it directly as individuals (not through a legal entity), you report the income and expenses directly on Schedule E of your joint Form 1040. Form 8825 is only for properties owned by a business entity that files Form 1065 or 1120-S.
Our 3-member LLC owns one rental house. We have no other business. Do we really need a partnership tax return and this form?
Yes, if the LLC is taxed as a partnership (which is the default for a multi-member LLC). The LLC must file Form 1065, and the rental activity will be detailed on Form 8825 attached to it. Then it issues K-1s to each of you three members.
What if the property had a major repair that we capitalized and are depreciating?
That’s handled on the entity’s books and on Form 8825. The cost of the new roof isn’t an “Repair” expense in the year you paid for it. It’s added to the property’s basis, and the depreciation expense for it is calculated and included in the “Depreciation” line on Form 8825 over its useful life (27.5 years for residential).
Our property manager’s fee is 8% of rent collected. Where does that go?
That is reported on the “Management Fees” line of Form 8825. Do not lump it in with “Commissions” or “Legal Fees.” Keeping expenses in the correct category is important for consistency and if the IRS ever asks.
Can we deduct our travel to check on the property?
Yes, but with careful documentation. If you are an owner who actively manages the property, travel costs (mileage, flights, hotels for property-related trips) are deductible on the “Auto and Travel” line. You must keep a log with dates, miles, destinations, and business purpose. Without a log, the deduction will not survive an audit.
What if the property sits vacant and we have a loss?
The loss is calculated on Form 8825 (income $0, minus expenses like mortgage interest, taxes, insurance = a loss). That net loss flows to the K-1s. However, on your personal return, that loss may be limited by the Passive Activity Loss rules if you are not a real estate professional. The loss might be suspended and carried forward to offset future passive income.
Form 8825 is the central clearinghouse for rental property held in a partnership or S-Corp. Its accuracy is critical because it feeds directly into your personal tax liability via the K-1. The biggest mistakes are commingling personal and property expenses, misclassifying repairs vs. improvements, and poor record-keeping for travel. If you’re in this situation, having a CPA prepare the partnership return (Form 1065 with Form 8825) is almost always worth the cost to ensure the allocations are correct and the depreciation is calculated properly. Trying to DIY a partnership return with rental property is a fast track to missed deductions or IRS correspondence.