Form 8825 CPA discusses the Form 8825 instructions | Form 1120S and Form 1065 | rental real estate issues

Your Form 8825 CPA probably reads the Form 8825 instructions every year. I do, at least. But I also look for changes in rental real estate tax reporting, including Form 8825 and Schedule E, on a paid tax database subscription. Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, is what S Corporations and Partnerships use to report annual rental real estate property profit or loss. The Form 8825 instructions are only one page. However Form 8825 includes a wide array of tax issues not included in the Form 8825 instructions.

Sources of help for Form 8825

• Form 1120S instructions
• Form 1065 instructions.
• Form 8825 instructions.
• IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
• Passive loss IRS Audit Technique guide.
  • This is the IRS handbook use by IRS agents during an audit. Extremely helpful for what not to do on Form 8825.
• Your tax software instructions.
  • Be wary of tax software when anything unusual occurs, like a sale or use by Shareholders or Partners.
  • Take care if you dispose of rental property. Your tax software won’t handle the gain or loss as automatically.
• Form 4797 instructions. While technically not related to Form 8825, read them when contemplating a sale.
• Form 8582 instructions. In the year of disposition Form 8582 calculates the previously disallowed passive losses e.g. for active participation landlords. You get to claim them t the sale. This is a huge big deal. I’ve seen landlords lose five figure tax deductions, ouch.
  • Professional real estate folks have material participation and take all losses in the year generated.
  • During an IRS audit a real estate professional would have to prove s/he meets to requirements for material participation.
• Form 982 instructions when you have a rental property foreclosure.
  • Don’t worry about the Form 1099-C instructions; they’re for bankers, not the taxpayer.
  • IRS Publication 4681. Although not intended for S Corporations or Partnerships it demonstrates many aspects of rental property cancelled debt.

“Rental real estate cancelled debt stays at the S Corporation level and doesn’t flow into your Schedule K-1 and then Form 1040. Rental property cancelled debt for Partnerships does flow down to the taxpayer.”
- Gary Bode, Form 8825 CPA

Depreciation on Form 8825

Rules have changed dramatically. One example is you can now immediately expenses anything under $500. IRS wrinkles exist of course. Here’s a tip. When you sell rental property you must recapture depreciation already taken or that could have been taken. So if you don’t claim deprecation on Form 8825 you get sledgehammered when you sell regardless. There’s a manual runaround. Ask your Form 8825 CPA about it. Different components of rental real estate use different types of depreciation.

Allocation of rental real estate property overhead

Your home office, as an example, isn’t directly related to any one Form 8825. Direct property expenses go on Form 8825. But overhead, indirect rental property expenses, like umbrella insurance and subscription to a back ground check company, get lumped together. Then you allocate them to the various Form 8825(s) by some cost driver. Rent received is one cost driver. Direct expenses on Form 8825 could be another cost driver.

If you don’t have a local rental property CPA well versed in Form 8825, consider calling us for a free rental property consult. If you decide to use us your location isn’t relevant as I practice nation wide. (910) 399-2705.

Find me on Google+
Find me on Google+