If your business owns rental real estate and you’re filing a partnership or S corporation return, you may need to include IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation, with your return. This form allows the IRS to verify the rental income, expenses, and deductions claimed by your entity, ensuring proper reporting and compliance with tax regulations. Proper completion of Form 8825 also helps prevent disallowed deductions, penalties, or interest.
What Is IRS Form 8825?
IRS Form 8825 is an informational schedule used by partnerships filing Form 1065 and S corporations filing Form 1120-S to report income and expenses from rental real estate activities. It provides a detailed breakdown of:
- Gross rental income: Total rent received from tenants.
- Operating expenses: Such as mortgage interest, taxes, insurance, repairs, utilities, and management fees.
- Depreciation: Deduction for wear-and-tear on buildings and improvements (using Form 4562).
- Net rental income or loss: The result after subtracting allowable expenses from rental income.
The IRS uses this information to confirm that rental deductions are legitimate and accurately reported, preventing potential tax misclassification or deduction disallowances.
Purpose of Form 8825
Form 8825 serves two main purposes:
- Tax Transparency
It discloses detailed rental income and expenses for each property owned by the entity. This ensures the IRS can verify that reported deductions match actual expenses. - IRS Oversight
By reporting rental activities in detail, Form 8825 enables the IRS to monitor: - Accuracy of income reporting
- Deductibility of expenses
- Compliance with passive activity rules under IRC Section 469
This helps prevent abuse, such as inflating expenses or misclassifying personal costs as business deductions.
Who Must File Form 8825?
Form 8825 is required for entities that report rental real estate income and expenses:
- Corporations and Partnerships Required to File
- S Corporations reporting rental real estate on Form 1120-S
- Partnerships reporting rental real estate on Form 1065
- Entities Not Required to File
- C corporations (they report rental income differently on Form 1120)
- Sole proprietorships (report rental income/expenses on Schedule E)
- Entities with no rental real estate activity
Filing Deadlines for Form 8825
Form 8825 must be filed with your main tax return:
| Entity Type | Main Return | Due Date |
|---|
| S Corporations | Form 1120-S | March 15, 2025 |
| Partnership | Form 1065 | March 15, 2025 |
Tip: File Form 7004 to request an automatic extension if you need more time.
Sections of IRS Form 4562 Explained
Form 4562 contains six parts. Each section deals with a specific type of deduction or property.
| Part | Section Title | Purpose |
|---|
| Part I | Election to Expense Certain Property (Section 179) | Deduct full cost of qualifying property |
| Part II | Special Depreciation Allowance | Claim bonus depreciation for eligible assets |
| Part III | MACRS Depreciation | Calculate annual depreciation using IRS methods |
| Part IV | Summary | Combine total deductions from all sections |
| Part V | Listed Property | Report assets like vehicles or equipment used for business and personal purposes |
| Part VI | Amortization | Record deductions for intangible assets |
Detailed Line-by-Line Instructions for Form 8825
Each section captures essential rental income and expense details. Here’s the breakdown:
| No | Field Name | Detailed Explanation |
|---|
| 1 | Property Information | Enter the property address, description, and property type code (e.g., single-family, commercial). List all rental properties owned by the entity. |
| 2 | Gross Rents | Total rents received during the tax year. Include any advance rent payments. |
| 3 | Expenses | Deductible expenses include: mortgage interest, property taxes, insurance, repairs, maintenance, utilities, and management fees. Exclude personal or non-deductible items. |
| 4 | Depreciation | Deduct allowable depreciation for buildings and improvements. Complete Form 4562 for proper reporting.
Note: Section 179 expense deduction typically does not apply to rental real estate. |
| 5 | Net Rental Income or Loss | Subtract total expenses from gross rents to calculate net income or loss. This figure is reported on the entity’s main return (Schedule K for partnerships, Line 2 of Schedule K for S corporations). |
| 6 | Supporting Schedules | If reporting multiple properties, attach additional sheets with identical details for each property. Also, attach separate Forms 8825 if more than eight properties are owned. |
Special Reporting Considerations for Personal Use
If any rental property has personal use days, allocate expenses between rental and personal use in accordance with IRS rules (IRC Section 280A). Only expenses attributable to rental use are deductible on Form 8825.
Example of Rental Real Estate Reporting
ABC Partnership owns two rental properties in 2025:
| Property | Gross Rent | Expenses | Depreciation | Net Income |
|---|
| 123 Main St | $60,000 | $25,000 | $10,000 | $25,000 |
| 456 Oak Ave | $40,000 | $20,000 | $5,000 | $15,000 |
The net rental income of $40,000 is reported on Form 8825 and carried over to Form 1065, Schedule K
Deductible vs Non-Deductible Rental Expenses
- Deductible Expenses: Mortgage interest, real estate taxes, insurance premiums, repairs and maintenance, utilities, property management fees, depreciation (Form 4562).
- Non-Deductible Expenses: Personal expenses unrelated to rental, capital improvements (must be depreciated), owner draws or withdrawals.
Passive Activity Loss Limitation Reminder
Rental real estate income or loss reported on Form 8825 may be subject to passive activity loss rules under IRC Section 469. Losses are deductible only to the extent allowed by these rules unless the taxpayer qualifies as a real estate professional.
Common Errors and Penalties
Frequent Mistakes:
- Not filing Form 8825 when rental activity exists
- Misreporting rental income or expenses
- Failing to report depreciation properly
- Mismatch between Form 8825 and Form 1065/1120-S totals
Consequences:
- Disallowed deductions
- Additional taxes, penalties, or interest charges
Pro Tip: Always reconcile your rental income and expenses with supporting documentation.
Key Compliance Tips
- Maintain detailed property records, receipts, and invoices
- Attach supporting schedules for multiple properties
- Ensure totals match your main return
- File Form 7004 for extensions if needed
- Review IRS instructions each year before filing
Frequently Asked Questions (FAQs)
1. Do all partnerships and S corporations file Form 8825?
Only those with rental real estate activities are required to file.
2. Can Form 8825 be e-filed separately?
No. It must be filed with Form 1120-S or 1065. TaxZerone includes it automatically if required.
3. How should multiple properties be reported?
Attach separate schedules for each property listing income and expenses individually.
4. Are rental losses deductible?
Yes, but only within limits of passive activity loss rules under IRC Section 469.
5. Is depreciation required?
Yes. Depreciation must be calculated and reported using Form 4562.
6. Does personal use affect reporting?
Yes. Expenses must be allocated between rental and personal use; only rental expenses are deductible.
