11452: 1065/1120/1120-S - Rental Income

Enter rental income for 1120 returns on the Gross rents line of screen INC (Income); enter rental expenses using the appropriate lines on screen DED (Deductions).  

For 1120-S and 1065 returns, there are two ways to enter rental income:

• Use screen 8825 (Rental Real Estate) to enter income and expenses from rental real estate.
  
• Use screen RENT (Rental (Non-Real Estate)) to enter rental income from sources other than real estate, such as equipment rental.

 NOTE: For 1065 and 1120-S returns, Drake Tax assumes that the nondeductible personal use portion of Form 8825 rental property has already been accounted for on the entity's books and records. For this reason, the only income and expenses that should be entered on screen 8825 should be net from nondeductible portions attributable to the business use of the rental property. ​

In 1120-S and 1065 returns, net rental income from Form 8825 flows to the "Net rental real estate income (loss)" line on Schedule K of Form 1120-S or 1065. From there, information flows to K-1 Rental Real Estate Activity form ("K-1 Form 8825" in View/Print mode) and the Schedule K-1 "Net rental real estate income (loss)" line based on the partner's or shareholder's ownership percentage.

Screen 8825

If there are multiple 8825 properties, press PAGE DOWN for a new 8825 screen. Use one screen per rental property. If a return has more than one 8825 screen, the program reports each property’s information on a separate column on Form 8825. Up to eight properties can be reported on each Form 8825; additional Forms 8825 are created as needed.

The number of columns to be used for reporting income and expenses on Form 8825 may differ from the number of rental real estate activities the partnership or S corporation has for purposes of the passive activity limitations. For example, a partnership owns two apartment buildings, each located in a different city. For purposes of the passive activity limitations, the partnership grouped both buildings into a single activity. Although the partnership has only one rental real estate activity for purposes of the passive activity limitations, it must report the income and deductions for each building in separate columns.

If the program is calculating depreciation (entered on screen 4562 (Depreciation Detail) for a property listed on Form 8825, do not enter the depreciation on the associated 8825 screen. Depreciation should be entered only if it is figured outside of Drake Tax, in which case the net results should be entered on screen 8825. Any depreciation entered on screen 8825 is either added to or subtracted from the linked 4562. For assets placed in service during the tax year, Form 4562 is required.

On screen 4562, indicate that the entered information should be carried to Form 8825 by selecting 8825 from the For drop list. If there are multiple 8825 screens, use the Multi-form code box to indicate to which property number or screen (not which form number) the associated Form 4562 information should be carried.

If, for 1065 returns, Include in self-employment income is selected at the top of screen 8825, the amounts from the 8825 screen are included in the calculation of the "Net earnings (loss) from self-employment" line on Schedule K of Form 1065. From here, the amounts flow to each K-1. Self-employment calculations are shown on the Worksheet for Figuring Net Earnings (Loss) From Self-Employment ("Wks SE" in View/Print mode).

K-1 Form 8825

Because the IRS requires preparers to provide taxpayers with more detail about income from rental property, Drake Tax produces a K-1 Rental Real Estate Activity ("K-1 Form 8825"), explaining the "Net rental real estate income (loss)" as it appears on each partner's or shareholder's Schedule K-1. The property type is determined based on the Type of Property selected on screen 8825. K-1 Form 8825 is produced automatically when Form 8825 is present in the return but it is not transmitted when the return is e-filed. Preparers should present K-1 Form 8825 to each partner or shareholder who receiving a Schedule K-1.

Total amounts from "Line 19 - 4797," "Line 20a - Pass-thru," and "Line 21 - Net" are also included on K-1 Form 8825, if applicable. Use the Supplemental Info. tab of screen K1 (Schedule K-1, Partner Information) (1065 returns) or K1E (Information about Shareholders and Officers) (1120-S returns) to include an explanation regarding these amounts for the partner or shareholder.

Screen RENT

Use screen RENT to report rental income that is not from rental real estate; for example, income from renting equipment. Amounts entered on screen RENT flow to the Schedule K, Line 3a and 3b Expenses from other Rental Activities worksheet ("Form Rent" in View/Print mode), as well as the "Other gross rental income (loss)" and "Expenses from other rental activities" line of Schedule K, Forms 1065 and 1120-S. Expenses are broken down on a Federal Supporting Statement ("Statement").

​

For details on entering rental income and expenses for a 1040 return, see Related Links below for Schedule E.