Form 8825 — Rental Real Estate Income and Expenses of a Partnership or an S Corporation
Form 8825 is used by partnerships and S-Corps to report rental real estate income and expenses. The net income or loss flows to the partners' or shareholders' Schedule K-1 (Box 2). For tax professionals, Form 8825 is important for real estate investment entities — particularly the passive activity rules and the real estate professional exception.
Key Rules and Authority
| Rule | Detail |
|---|---|
| Passive Default | Rental activity is passive unless exception applies |
| Real Estate Pro | 750 hours + more than 50% of services in real estate |
| $25,000 Allowance | Active participation — phases out $100K–$150K AGI |
| QBI Deduction | §199A — rental income may qualify |
| Depreciation | 27.5 years residential; 39 years commercial |
| Net Investment Income | 3.8% NIIT on passive rental income |
Real Estate Professional Exception — Converting Passive to Non-Passive
Rental income is passive by default — losses can only offset other passive income. However, a taxpayer who qualifies as a "real estate professional" under §469(c)(7) can treat rental activities as non-passive, allowing rental losses to offset ordinary income. To qualify: (1) more than 50% of the taxpayer's personal services during the year must be in real property trades or businesses in which they materially participate; and (2) the taxpayer must perform more than 750 hours of services in those real property trades or businesses. For a married couple, only one spouse needs to meet the test — but the qualifying spouse must individually meet both requirements (hours cannot be aggregated between spouses).
Frequently Asked Questions
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