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Form 8825 for Self-storage units

Technical topics regarding tax preparation.
#1
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Hope somebody has a quick answer for this. Would you file form 8825 to report income/loss from self storage units or would this be page 1 Ordinary income?

Thanks!!
 

#2
JR1  
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I'd have to vote for 8825. It'll be interesting to see what others might say.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#3
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8825
 

#4
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Per hopper they're rentals not subject to SE unless substantial services.

http://www.leagle.com/decision/19906369 ... MMISSIONER
 

#5
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So I would like some more clarity on this issue. The company I work for manages Self Storage facilities. I am new to them this year. I am reviewing their prior-year tax returns (several small partnerships) and form 8825 was not used. All of the activity was treated as ordinary. I don't want to change the reporting methodology or raise any red flags with the Service, but I feel it is wrong and should have been reported on form 8825. Thoughts?
 

#6
makbo  
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This topic has come up multiple times here, use the "yellow box of search" to see for yourself.

The Form 8825 instructions state,
"Do not report on Form 8825 any of the following.
• Income or deductions from a trade or business activity or a rental activity other than rental real estate. These items are reported elsewhere.""


Trade/business status and SE tax are two separate topics under the tax law.

For example: a partnership owns (or leases) and operates several commercial rental properties as its only activity. While I have used Form 8825 to report the rental in this situation, I think since it is a trade/business it should actually be reported as ordinary income, Schedule K(1065,1120S) Line 1, not Line 2.

So in short, while technically not correct to use Form 8825 when reporting income from renting real property as a trade/business, it seems like it is the form best suited for reporting it, and so far no hiccups from the IRS.
 

#7
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makbo wrote:This topic has come up multiple times here, use the "yellow box of search" to see for yourself.

The Form 8825 instructions state,
"Do not report on Form 8825 any of the following.
• Income or deductions from a trade or business activity or a rental activity other than rental real estate. These items are reported elsewhere.""


Trade/business status and SE tax are two separate topics under the tax law.

For example: a partnership owns (or leases) and operates several commercial rental properties as its only activity. While I have used Form 8825 to report the rental in this situation, I think since it is a trade/business it should actually be reported as ordinary income, Schedule K(1065,1120S) Line 1, not Line 2.

So in short, while technically not correct to use Form 8825 when reporting income from renting real property as a trade/business, it seems like it is the form best suited for reporting it, and so far no hiccups from the IRS.


You seem to have contradicted yourself in this post.
Guidance (nonauthoritative) for Line 1 reporting: Income...from a TorB...other than rental real estate.
Your example: "operates several commercial rental properties"
Your conclusion: "Technically" correct to be Line 1 income???

The decision tree should start at: Is this rental real estate? That gets it to Form 8825 and Line 2 on the K-1.
~Captcook
 

#8
makbo  
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CaptCook wrote:You seem to have contradicted yourself in this post.
Guidance (nonauthoritative) for Line 1 reporting: Income...from a TorB...other than rental real estate.

No, you are mis-reading the grammar and omitting a key phrase.

"a rental activity other than rental real estate" means rental of personal property.
 

#9
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makbo wrote:it seems like it is the form best suited for reporting it


Agree, whether it's correct or not, including rental real estate taxable income on line 1 invites a partner to misapply IRC Sec 469.
 

#10
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makbo wrote:No, you are mis-reading the grammar and omitting a key phrase.


Makbo, you have to dig deeper than the 8825 instructions... What is a trade or business activity in the context of the 8825 instructions you quoted?

From 1065 instructions:

Trade or Business Activities
A trade or business activity is an activity (other than a rental activity or an activity treated as incidental to an activity of holding property for investment) that...


Rental Activities
Generally, except as noted below, if the gross income from an activity consists of amounts paid principally for the use of real or personal tangible property held by the partnership, the activity is a rental activity.


So...my non-authoritative guidance trumps your non-authoritative guidance. :)
 

#11
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Hopper was a good read. Four years later, thanks for putting it on my radar Terry.
 

#12
JR1  
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Yeah, while he's renting individual units....is that inherently different than renting apartments? 8825.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#13
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makbo wrote:
CaptCook wrote:You seem to have contradicted yourself in this post.
Guidance (nonauthoritative) for Line 1 reporting: Income...from a TorB...other than rental real estate.

No, you are mis-reading the grammar and omitting a key phrase.

"a rental activity other than rental real estate" means rental of personal property.


Your post above:
makbo wrote:For example: a partnership owns (or leases) and operates several commercial rental properties as its only activity. While I have used Form 8825 to report the rental in this situation, I think since it is a trade/business it should actually be reported as ordinary income, Schedule K(1065,1120S) Line 1, not Line 2.


I've misread nothing.
You suggested that operating several commercial properties is Line 1 income. That's absurd. It's the rental of real estate, most definitely NOT the rental of personal property. Has nothing to do with whether you consider it a trade or business in other respects.
~Captcook
 

#14
makbo  
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CaptCook wrote:I've misread nothing.
You suggested that operating several commercial properties is Line 1 income. That's absurd. It's the rental of real estate, most definitely NOT the rental of personal property. Has nothing to do with whether you consider it a trade or business in other respects.

OK, maybe you did not misread, but neither did I contradict myself. The form instructions clearly state that trade/business income does not get reported on Form 8825. The example I gave was a trade/business of managing real estate rental properties, which does not get reported on Form 8825, per instructions. (As we know ever since QBID was enacted[*], most rental real estate is a trade/business, certainly at the level of my example).

As I stated, I still use Form 8825 despite the instructions. In fact, I only learned it was incorrect from a previous discussion somewhere on this forum, I'll try to find it someday.

[*] cynicism
 

#15
JR1  
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Managing rental real estate is different from actually renting real estate....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#16
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JR1 wrote:Managing rental real estate is different from actually renting real estate....

I don't disagree.

The example that was provided was an entity that "owns (or leases) and operates several commercial rental properties," which is factually different than simply a management entity that doesn't own real estate.
~Captcook
 

#17
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Thanks for all the replies everyone. I think it is pretty clear the activity should have been reported on 8825. Now I don't know if I should go back and amend all the prior year returns or just make the change and move forward. Thoughts?
 

#18
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If it were me, and that's the only thing wrong with the returns, I would just make the change on a prospective basis.
 


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