Mixing the two up causes real damage: misplaced depreciation, rental losses reported on the wrong return, and K-1 figures that don't tie back to the entity return.
This guide covers who files what, how to complete Form 8825, how the result flows to Schedule K, Schedule K-1 and Schedule E, current form changes, and where Australian tax obligations sit separately.
Key Takeaways
- Individuals use Schedule E; partnerships and S corporations attach Form 8825 to Form 1065 or Form 1120-S.
- Form 8825 reports property by property, then flows through Schedule K and K-1 to Schedule E, Part II.
- Separate gross rents from other rental income and reconcile depreciation to your asset schedules.
- Use the current IRS form and instructions; the December 2025 revision changed several items.
Schedule E vs. Form 8825: Which Form Applies?
What Schedule E is used for
Individuals who own rental property directly report rental income, expenses, depreciation and net income or loss on Schedule E, Part I.
A domestic single-member LLC with no corporate election is disregarded for federal income tax. Its rental activity appears on the owner's individual return, not on Form 8825. The entity's tax classification and facts still matter, so confirm whether Form 8832 was ever filed.
Who uses Form 8825
Partnerships filing Form 1065 and S corporations filing Form 1120-S attach Form 8825 to report rental real estate income and expenses.
Some situations need extra care:
- Property held primarily for sale to customers (dealer property) is not ordinary Schedule E rental activity.
- Significant services, such as maid service, take an activity outside ordinary rental reporting. Heat, light, common-area cleaning and rubbish collection don't count as significant services.
- Short stays (average use of 7 days or less) are treated differently for passive activity purposes, and Form 8825 has a separate vacation/short-term property code.
The practical difference
| Point | Schedule E (Part I) | Form 8825 |
|---|---|---|
| Who files | Individual owning directly | Partnership or S corporation |
| Attached to | Form 1040 | Form 1065 or Form 1120-S |
| Property-level reporting | Yes | Yes |
| Depreciation | Line 18 | Line 14 |
| Final result | Individual return | Schedule K, line 2 |
The form the entity uses and the form the owner uses can differ. A partner receiving a K-1 reports the rental share on Schedule E, Part II, even though the underlying income came from Form 8825.
How to Complete Form 8825 Step by Step
Step 1: Confirm the entity and gather property information
Enter the entity name and EIN. List each rental property separately with its address, property type code, fair rental days and personal-use days.
Property codes on the current revision are:
- 1 single-family
- 2 multi-family
- 3 vacation/short-term
- 4 commercial
- 5 land
- 6 royalties
- 7 self-rental
- 8 other, with a description
Don't copy codes from an older form or a third-party guide. The December 2025 edition has four property columns on page 1, and page 2 adds four more entries. Attach extra pages when needed.
Column (c), the transaction code (A through I, covering contributions, exchanges, acquisitions, dispositions and similar events), is required only where the entity has a Schedule M-3 filing requirement.
Step 2: Report rental income by property
Report gross rents on line 2a and other rental-related income on line 2b. Line 2c totals the two. Late fees, tenant reimbursements, parking and laundry income are typical 2b items. Confirm treatment against the current form instructions.
Total each property's income before deducting anything. Keep a rent roll or general ledger report to support every figure.
Step 3: Enter deductible expenses
Enter expenses on the matching lines:
- Lines 3–13: advertising, auto and travel, cleaning and maintenance, commissions, insurance, interest, legal and professional fees, real estate taxes, repairs, utilities, and wages and salaries
- Line 14: depreciation
- Lines 15–16: reserved
- Line 17: other deductions
Repairs are deductible only where capitalisation isn't required. A betterment, restoration or adaptation to a new use is an improvement and gets capitalised, not expensed.
Keep supporting records for every entry:
- Invoices and contracts
- Mortgage statements and tax bills
- Insurance records and management reports
Step 4: Calculate each property's net income or loss
Line 18 totals expenses (lines 3 to 17). Line 19 is income minus expenses, per property.
Lines 20a and 20b total income and expenses across properties. Line 23 is the combined net result that carries to Schedule K, line 2.
A workable preparation workflow:
- Close the general ledger and map accounts to Form 8825 lines.
- Build property schedules from the rent roll and expense detail.
- Tie depreciation to the fixed-asset register.
- Complete Form 8825 and carry the total to Schedule K.
- Confirm owner allocations match each K-1.
Rental Income, Expenses, Depreciation, and Current Form Updates
What income belongs where
Base rent goes on line 2a. Other rental-related receipts go on line 2b. Keeping them separate helps property-level analysis, owner reporting, and reconciliation between Form 8825 and Schedule K.
Expenses and depreciation
Use a consistent chart of accounts that maps cleanly to the form's lines. Then handle depreciation carefully:
- Land is not depreciable. Separate it from buildings and improvements.
- Residential rental buildings use a 27.5-year recovery period; nonresidential real property uses 39 years.
- Depreciation begins when the property is ready and available for rent, not when the first tenant arrives (IRS Publication 527: ready 5 July, leased 1 September; depreciation starts in July).
- Real property uses the mid-month convention.
Form 4562 covers depreciation and Section 179. Under P.L. 119-21, 100% bonus depreciation returns for qualified property acquired and placed in service after 19 January 2025, according to IRS Form 4562 instructions.
Buildings themselves generally don't qualify, but qualified improvement property can. Section 179 generally doesn't apply to property held only for income production where renting isn't a trade or business.
Schedule A (Form 8825)
The December 2025 revision introduced Schedule A (Form 8825), Rental Real Estate Other Deductions. Third-party guides conflict on who must attach it.
The final IRS Form 8825 instructions resolve it: Schedule A is required for partnerships and S corporations with a Schedule M-3 filing requirement. Other filers enter other deductions directly on line 17.
Schedule A lists categories such as management fees, ground rent, landscaping, contract services and tenant renovations, with the total carried to line 17.
How Rental Income Flows to Schedule E, Schedule K, and Schedule K-1
From Form 8825 to the entity return
Form 8825, line 23, carries to Schedule K, line 2, on Form 1065 or Form 1120-S. Confirm line references against the current-year instructions.
From Schedule K to Schedule K-1 and Schedule E
Each partner's or shareholder's share appears in box 2 of Schedule K-1. The individual generally reports it on Schedule E, Part II (line 28), not Part I. Part I stays reserved for properties the individual owns directly.
Owner-level considerations
Several limits can restrict how much loss an owner uses, applied in this order:
- Basis
- At-risk rules (Form 6198)
- Passive activity limits (Form 8582)
Rental activity is generally passive. Common exceptions include:
- Real estate professional: more than 750 hours and more than half of personal services in real property businesses
- Self-rental: income from property leased to a business the owner materially participates in is nonpassive
Each exception has detailed tests, so model the position before you file.
Cross-border considerations for Australian owners
Schedule E and Form 8825 are U.S. federal forms. They don't replace Australian reporting.
Australian residents must report foreign rental income to the ATO in Australian dollars, with deductions and foreign tax converted the same way. See the ATO myTax instructions for the conversion method.
A foreign income tax offset may apply, and the U.S.-Australia treaty (Article 22) provides credit relief, subject to Australian-law limits.
Non-resident aliens with U.S. rental income generally face 30% tax or a lower treaty rate unless they make a valid election to be taxed on net income via Form 1040-NR.
VJM Global supports Australian businesses with accounting outsourcing and U.S.-compliant tax and compliance coordination for cross-border operations. The outcome of any tax position depends on individual facts.
Common Mistakes and a Form 8825 Preparation Checklist
Common reporting mistakes
Structure errors:
- Filing the wrong form for the ownership structure
- Reporting rental real estate in the wrong section of an entity return
- Combining gross rents with other income when separation is required
- Using outdated line references
Calculation errors:
- Depreciating land
- Ignoring personal-use rules (a dwelling is a home if personal use exceeds the greater of 14 days or 10% of fair rental days)
- Treating improvements as repairs
- Claiming unsupported "other" deductions
- Omitting a required Schedule A
Reconciliation and documentation checklist
- Leases and rent rolls
- Property addresses and codes
- Fair rental and personal-use days
- Expense invoices
- Loan and interest statements
- Property tax and insurance records
- Fixed-asset schedules and depreciation calculations
- Ownership allocations
Finish with a tie-out: general ledger, Form 8825, Form 1065 or 1120-S, Schedule K, each K-1, and the individual Schedule E where relevant. Publication 583 calls for keeping asset records until the limitation period ends for the year you dispose of the property.
When professional review is appropriate
Seek a professional review when any of these apply:
- Multiple properties
- Related-party or self-rental arrangements
- Foreign owners
- Short-term rentals
- Property sales or major improvements
- Passive loss limits
- Uncertainty about the current form revision
This article is educational. The current IRS instructions and qualified tax advice should control for your specific facts.
Frequently Asked Questions
What income is reported on Schedule E and Form 8825?
Individuals report directly owned rental income on Schedule E, Part I. Partnerships and S corporations report rental income on Form 8825, with gross rents on line 2a and other rental-related income on line 2b.
Where can I find and download a PDF of Schedule E (Form 1040) and Form 8825?
Use the IRS Forms and Instructions pages at irs.gov/forms-instructions. Download the form and instructions for the correct tax year rather than an outdated third-party copy.
Who needs to file Form 8825 instead of Schedule E?
Partnerships and S corporations with rental real estate generally use Form 8825. Individuals generally use Schedule E, subject to entity classification and activity-specific exceptions.
How does Form 8825 rental income reach an individual's Schedule E?
Form 8825, line 23, goes to Schedule K, line 2, then to the owner's K-1, box 2. The individual generally reports it on Schedule E, Part II.
Can an individual file Form 8825 for a personally owned rental property?
Generally no. Directly owned property goes on Schedule E. Confirm the ownership entity and its federal tax classification first.
