Form 8825 for Partnerships and S-Corps Owning Rentals

Form 8825 reports rental real estate income and deductions for partnerships (Form 1065) and S-corporations (Form 1120-S) — it's the entity-level analog of an individual's Schedule E; the exception that costs landlords money is missing that the rental loss still has to clear PAL rules at the partner/shareholder level, not at the entity, so the K-1 amount isn't automatically deductible just because the entity reported it.

If your rentals sit inside an LLC taxed as a partnership or an S-corporation, Schedule E isn't your form — Form 8825 is. It's the partnership/S-corp equivalent of Schedule E, attached to Form 1065 or Form 1120-S, and it feeds the rental real estate line on every partner's or shareholder's K-1.

Get the entity-level form wrong and every partner gets a wrong K-1. Below: the line-by-line mechanics, how the result flows to the partners, and the audit traps unique to multi-owner rental entities.

The rule explained

Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) is filed by:

• Partnerships (including LLCs taxed as partnerships) that hold rental real estate
• S-corporations that hold rental real estate

It reports each property's gross rents, operating expenses, depreciation, and net income or loss. The bottom-line net result flows to Schedule K of the entity return, then to each owner's K-1, then to that owner's Schedule E Part II.

What Form 8825 does NOT do:

• It does not test passive activity loss rules — that's done at the owner level on Form 8582
• It does not test material participation — same, owner level
• It does not handle income from short-term rentals with substantial services (those go on a separate Schedule C-equivalent inside Form 1065/1120-S)

Each property gets its own column (up to 8 per page; additional pages as needed). The entity also files Form 4562 for depreciation supporting the 8825 numbers.

Who files it

If your entity holds both rentals AND non-rental businesses, the rentals go on Form 8825 and the businesses go on the entity's primary income statement. Don't mix them.

How to fill it out — line by line

Form 8825 has columns for properties A through H. For each:

Line 1 — Show the address. Full street address for each property. Use additional sheets if more than 8.

Line 2 — Type of property. Code 1 (single-family), 2 (multi-family), 3 (vacation/short-term), 4 (commercial), 5 (land), 6 (royalties), 7 (self-rental), 8 (other). Codes matter — code 3 flags short-term/vacation property for §469 treatment, code 7 triggers self-rental recharacterization.

Line 3 — Fair rental days / Personal use days. For mixed-use (vacation) property only. Important because if personal use exceeds the greater of 14 days or 10% of rental days, deductions are limited under §280A.

Line 4 — Gross rents. Cash collected during the year (cash basis) or earned (accrual basis). Include forfeited security deposits as rent. Do NOT include refundable security deposits still held in trust.

Lines 5-15 — Operating expenses. Categories include:

• Advertising
• Auto and travel
• Cleaning and maintenance
• Commissions
• Insurance
• Legal and professional fees
• Interest (mortgage)
• Repairs
• Taxes (property)
• Utilities
• Wages and salaries

Line 16 — Depreciation. Sum from Form 4562 for each property.

Line 17 — Other expenses. Anything not categorized above (HOA fees, pest control, supplies). Detail on attached statement.

Line 18 — Total expenses.

Line 19 — Income or loss per property. Gross rents minus total expenses.

Line 20 — Net gain (loss) from Form 4797. Disposition gains and losses on rental property.

Line 21 — Net income (loss). Bottom line that feeds Schedule K.

The Schedule K-1 line for the partner/shareholder is "Net rental real estate income (loss)" — Box 2 on a partnership K-1, Box 2 on an S-corp K-1.

Common errors

Reporting on the wrong form. Short-term rentals with substantial services (cleaning, meals, daily turnover) belong on the entity's business return — not Form 8825. Putting them on 8825 misrepresents the income as passive rental rather than active business income.

Double-counting at owner level. Partners report the 8825 net loss on Schedule E Part II — they do NOT also report property-level items separately. The K-1 has already aggregated them.

Forgetting the basis limitation. A partner can only deduct losses up to their tax basis in the partnership (§704(d)). S-corp shareholders are limited to basis in stock + direct loans to the corp (§1366(d)). Excess loss carries forward at the owner level — but the basis test must happen BEFORE the at-risk test (§465) and the PAL test (§469).

Mishandling self-rental income. If the entity rents to a related business, mark code 7. Under §469 self-rental rules, NET INCOME (not losses) is recharacterized as non-passive — meaning you can't use the profitable self-rental to soak up passive losses from other rentals. Losses remain passive.

Treating LLC distributions as deductions. Distributions to members are not deductible — they're returns of capital or partner-level taxable events depending on basis. The deductions are the entity's operating expenses on 8825.

Missing the §163(j) interest limitation. Larger partnerships (over the small-business gross receipts threshold) can have interest expense limited under §163(j). Most rental LLCs are small enough to be exempt, but the real estate election (irrevocable, must use ADS depreciation) is worth knowing.

Edge cases

Real estate professional aggregation. REP status is tested at the individual partner level — not at the entity. A partner who qualifies as REP files the §469(c)(7)(A) election personally to aggregate the entity's rentals with their other rentals.

S-corp basis vs partnership basis. S-corp shareholder basis does NOT include the entity's third-party debt (except direct loans from the shareholder). Partnership basis DOES include the partner's share of recourse and qualified nonrecourse debt. This makes partnerships better than S-corps for highly leveraged rental portfolios — partners get loss deductions S-corp shareholders don't.

Special allocations. Partnerships can specially allocate depreciation, income, or specific items differently than the standard ownership %, provided the allocations have substantial economic effect (Treas. Reg. §1.704-1(b)(2)). Common in real estate to allocate depreciation to high-bracket partners. Requires careful drafting.

Step-up at death for partnership interests. A §754 election lets the partnership step up the inside basis of partnership property when an interest is transferred at death. Without the election, the heir's outside basis goes up but the inside basis doesn't — depreciation continues at the old basis.

Late S-corp election rescue. If you formed the LLC and intended an S-corp election but missed the deadline, Rev. Proc. 2013-30 provides a late-election procedure within 3 years and 75 days. After that, you're stuck as a partnership for the missed years.

Examples with numbers

Example 1: Two-partner LLC with one rental

Property: 4-unit residential. Gross rents: $84,000. Operating expenses: $32,000. Depreciation: $14,500. Net loss: $84,000 - $32,000 - $14,500 = ... let me redo: gross rents $84,000 minus ($32,000 + $14,500) = $37,500 net income.

Actually the more instructive case is a loss:

Gross rents: $48,000. Operating expenses: $28,000. Depreciation: $24,000. Net loss: -$4,000.

Partners A and B own 50/50. Each K-1 Box 2: -$2,000.

Partner A: $80K W-2, $5K passive income, MAGI $85K, active participation.

• Full $2,000 loss deductible against ordinary income via $25K allowance (well under cap).

Partner B: $250K W-2, no other passive income, MAGI $250K.

• Active participation allowance phased out completely above $150K MAGI.
• No other passive income to offset.
• $2,000 suspended on Form 8582; carries forward.

Same K-1, completely different tax outcomes. The form 8825 mechanic is identical; the partner-level treatment diverges entirely.

Example 2: S-corp basis limitation

S-corp owns one property with $500K mortgage. Single shareholder contributed $20K cash and no shareholder loans. Year-one cost seg + bonus depreciation generates $80,000 loss on Form 8825.

K-1 Box 2: -$80,000. Shareholder basis: $20K (cash) - $0 (no third-party debt counts for S-corp) = $20,000.

• Deductible loss this year: $20,000 (capped at basis under §1366(d))
• Suspended at basis level: $60,000, carries forward until basis is restored

The same loss in a partnership would let the partner pick up their share of the mortgage as debt basis — potentially making the full $80,000 deductible. This is the structural reason real estate is typically held in partnerships (LLCs taxed as partnerships), not S-corps.

FAQ

Can a single-member LLC use Form 8825? No. SMLLCs taxed as disregarded entities file Schedule E directly on the owner's 1040. Form 8825 is for multi-member LLCs and S-corps only.

What's the deadline for Form 1065 / 1120-S? March 15 (calendar-year entities). Extensions to September 15 via Form 7004. Late-filed K-1s leave partners scrambling at the April 15 personal deadline — file extensions early.

Do I need to issue 1099-NECs from a Form 8825 rental entity? Yes, for service providers paid $600+ (Form 1099-NEC) and gross proceeds to attorneys regardless of amount. The "real estate trade or business" 1099 rules apply once the entity is clearly engaged in rental activity.

Can the entity claim QBI on Form 8825 rentals? QBI is computed at the owner level using K-1 information. The entity reports the underlying numbers on Statement A to the K-1 (W-2 wages, UBIA of qualified property, etc.). Whether the rental qualifies as a §199A trade or business — including the Rev. Proc. 2019-38 safe harbor — is tested by the partner/shareholder.

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This isn't tax advice. Consult a CPA familiar with US rental real estate.