S Corp - Form 8825

[Mo Sheets]

I have a new client (S-Corp) this year who has two rental houses. Are income and expenses still reported on Form 8825? Also, since they actively manage/participate, does the $25,000 loss limit still apply? Their actual loss will be significantly less ($3,000 range).

Thanks!

Mo

[Mo Sheets]

Can anyone help????

Just bumping back up to see if anyone can give me some guidance.....

Thanks again....I know everyone is swamped too!

Mo

[WhiteOleander]

I have a new client (S-Corp) this year who has two rental houses. Are income and expenses still reported on Form 8825? Also, since they actively manage/participate, does the $25,000 loss limit still apply? Their actual loss will be significantly less ($3,000 range).

Thanks!

Mo

As far as I know the 8825 is used. It is passive income and will flow through to the K-1 as passive. The 25,000 loss limit will apply at the shareholder level on their own 1040. Each shareholder will have to meet the loss limit for their own return. One might meet the limit. The other might not.

Does the S-Corp actually own the houses? Some have said it's not a good idea for a corp to own real estate. Just wondering.

[veritas]

Yes

report each on a seperate form 8825.

The losses/gains will be reported to the shareholders on the K-1 with a supplement so they can apply the passive activity rules on their personal returns.

[Mo Sheets]

More info....

The S corp owns both residential rental properties. According to the husband and wife, their former CPA (four years ago) told them to set up that way. They have gone to HRB for the last couple of years. HRB completed the 1120S but used a Schedule E last year. I was under the impression it should be reported on Form 8825.

Also, under the instructions for K-1 (form 1120S) it indicates "Special allowance for a rental real estate activity. If you actively (which they do) participated in a rental real estate activity, you may be able to deduct up to $25,000 of the loss from the activity from non-passive income. This "special allowance" is an exception to the general rule disallowing losses in excess of income from passive activities."

Any thoughts? Thanks again for taking the time to respond.

Mo

[WhiteOleander]

The S corp owns both residential rental properties. According to the husband and wife, their former CPA (four years ago) told them to set up that way. They have gone to HRB for the last couple of years. HRB completed the 1120S but used a Schedule E last year. I was under the impression it should be reported on Form 8825.

Also, under the instructions for K-1 (form 1120S) it indicates "Special allowance for a rental real estate activity. If you actively (which they do) participated in a rental real estate activity, you may be able to deduct up to $25,000 of the loss from the activity from non-passive income. This "special allowance" is an exception to the general rule disallowing losses in excess of income from passive activities."

Any thoughts? Thanks again for taking the time to respond.

Mo

Generally, T/Ps cannot deduct passive losses from non-passive income. They can only deduct passive losses from passive income. But, they do allow T/Ps to deduct up to 25,000 loss from non-passive income if they meet certain conditions. One of the conditions is that they must activately participate in the r/e actvity.

This is the rule for personal income taxes. So, the loss would pass through to the shareholder's personal tax return. Then it would be decided on the 1040 whether or not that shareolder meets the requirements to deduct the loss on his return against his other non-passive income.

It is not decided at the 1120S level

[BHoffman]

The S corp owns both residential rental properties. According to the husband and wife, their former CPA (four years ago) told them to set up that way. They have gone to HRB for the last couple of years. HRB completed the 1120S but used a Schedule E last year. I was under the impression it should be reported on Form 8825.

Mo

HRB reported the rental activity on PAGE 1 of Sch E of the 1040?! Ouch. It should be reported in Sch E page 2 on the 1040 (where all the K1s go), and form 8825 in the 1120S.

[Mo Sheets]

Hrb

Thanks for all the replies!

HRB did not complete form 8825 for the 1120S return last year. They completed a Schedule E instead. The previous CPA (four years ago) always completed the 8825 form to go along with the 1120S and the K-1's. Go figure!

Mo