- Gary Bode, CPA: we stay sharp on rental real estate tax issues. For a free initial consult, please call 399-2705.
Hi, I’m Gary Bode, a rental property CPA with a virtual office to serve clients living beyond our Wilmington, NC base.
Bullet Proofing Form 8825
I look for red flags on IRS Form 8825. If present, there’s usually a valid explanation for them. When possible, rental property CPAs provide that explanation as supplemental information on the tax return. For example, if there is no rental property income for the year, and after gaining an understanding of the exact situation, we might offer the following three-point explanation:
- Your Partnership or S Corporation just bought the property.
- Your Partnership or S Corporation was remodeling it during the tax year.
- Rental income was first generated on March 10th of the next tax year.
So, if IRS parameters select your Form 8825 for closer examination, this explanation might allow the Agent to accept the return as is.
Past Rental Property Posts:
- Form 8825 line by line preparation.
- Passive rental losses.
What Raises Red Flags on Form 8825?
I think there are two basic types of rental property red flags; inconsistent internal financial ratios compared to other Form 8825s for that tax year, and, inconsistencies on this year’s Form 8825 to your prior Form 8825s. Some examples of red flags:
- Items on Form 8825 that shouldn’t be there. Like say a $35,000 expense labeled “Research.”
- Items that should be on Form 8825, but aren’t. Not presenting a valid expense, like real estate taxes for example, implies sloppy tax preparation. Despite the fact that deducting real estate taxes decreases tax liability.
- Transactions that are handled wrong, e.g., directly writing off a new roof instead of depreciating it.
- Losses represented as non-passive, especially if the partners or shareholders can deduct these losses on their personal Form 1040.
- Figures that seem to be estimated. Multiple round numbers seldom appear if expenses are actually tracked.
- “Miscellaneous” expenses. It’s better to break it out into the proper categories.
- Combining multiple rental property figures instead of separating them by property, as the IRS requires.
- Rental property CPAs usually run a three-year comparison of your Form 8825s.
We’re a rental property CPA firm with rental properties in our extended Family. So you know we stay sharp on Form 8825. For a free initial phone consult call (910) 399-2705
