1120S rental income and expenses on page 1?

[Ross]

An out of state 1040 client of mine bought a cabin for a rental last January. He set up an SCorp for it. I do a few SCorp returns for my day job, but they are reviewed by an external CPA firm. I'm not very versed at SCorp returns and limit my seasonal home practice to 1040s. I told my client to find someone locally to do the SCorp return. I got a copy of the 1120S today. The preparer ran all of the income and expenses through page one and did not use form 8825. The SCorp reported a $33k loss.

I informed my client that I thought the income and expenses should be reported on form 8825. My client forwarded my e-mail to the preparer and the preparer responded to me:

"The s-corp is a holding company for the rental activity. XXX is the actual managing rental company of the cabin. Given this situation this is the best way to handle the income and expenses. I do quite a few other situations like this and have never had an issue. For many years. If you want to do an 8825. You can amend my filings. The result going through the personal will be the same.
Up to you. I stand by the way it is done."

Is he correct? Or should it be amended? TIA.

[Lion]

Real estate shouldn't be in a corporation in the first place. Secondly, what type of entity is XXX and what is XXX's relationship to the S-corp and to your client? (Does your client think he has a managing rental company for the cabin PLUS a holding company S-corp?) Third, do you have a copy of XXX's income tax return? Fourth, does the return include depreciation schedules, information on the type of rental, days rented/available, all the kinds of info that start on Form 8825 and related schedules? I think you need to take this back, even if you run it through your day job to have the external review.

[Ross]

I had corresponded w/ my client when he was considering buying this cabin rental. I didn't know that he had set up an SCorp for it until last week. I intended to just run it through Schedule E. XXX is just some type of property management company, they find renters for the cabin, etc. They are not a shareholder and only my tax client and his wife have K1s from the SCorp. From the 1120S it appears that the SCorp paid XXX over $7k in commissions. I have no knowledge of XXX company's tax return. Yes, the return includes depreciation schedules and "Cabin Rental" is listed on Schedule B line 2a of the 1120S. However, the type of rental, days rented, etc. are not on the 1120S like it would be if form 8825 was prepared.

[WICPA]

I've seen my share of S-Corps holding rental property so I do not think that's an issue. Are these short term rentals? It seems that way to me from what you said about the management company finding renters etc. If they are short term rentals and substantial services such as cleaning or maid services are provided then I would agree with how it was prepared. If you were doing a 1040 for this it would be on Schedule C rather than E as it would be subject to SE tax.

[Lion]

You said the s-corp is the holding company for XXX company. Later, you sound like XXX is a vendor hired by the s-corp and not part of the structure of the entity at all.

[Ross]

The preparer said that the SCorp is a holding company.

[Lion]

Go it. You are not disputing whether your client's S-corp is a holding company. You are asking if an 8825 was needed. WICPA's explanation of short-term vs long-term rentals reported by an S-corp gives you your answer.

[Burke]

I've seen my share of S-Corps holding rental property so I do not think that's an issue. Are these short term rentals? It seems that way to me from what you said about the management company finding renters etc. If they are short term rentals and substantial services such as cleaning or maid services are provided then I would agree with how it was prepared. If you were doing a 1040 for this it would be on Schedule C rather than E as it would be subject to SE tax.

I tend to agree with this. I have done quite a few SCorps that hold rental property, but they involved long-term leases, and were commercial properties. Always did the 8825 for these. SCorp is okay as long as you only have one property per entity in them. Multiple properties can be problematic on the liability side.