Key takeaways
- A single-member LLC rental belongs on the owner's Schedule E Part I, not on Form 8825.
- A partnership or S corporation files Form 8825 with its return, and the owner reports the K-1 share in Part II.
- Form 8582 is needed when the owner's MAGI is over $100,000 or a passive loss carries over from a prior year.
- Personal-use days above the greater of 14 days or 10% of rental days limit the expenses that can be deducted.
Decide which form the income belongs on
Schedule E Part I covers rentals the individual reports directly, including a single-member LLC. The IRS states that an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation.
A partnership reports its rentals on Form 8825 and Schedule K, line 2, of Form 1065, not on page 1 of Form 1065. The owner then gets a Schedule K-1 and reports the share in Schedule E Part II. The 2025 Schedule E instructions say Part II is for your share of partnership or S corporation income, even if not received.
Decision rule: if the rental sits in an LLC, ask whether the LLC files its own Form 1065 or 1120-S. If it does, the rent is on that return and the owner reports the K-1 in Part II. If it does not, the rent goes on Part I. The failure mode is entering the entity's gross rent on Part I and the K-1 on Part II, which counts the same rent twice.
Income on line 3, one column per property
Part I has one column for each property. Enter the address, property type, fair rental days and personal-use days at the top of each column.
Rent goes on line 3, and rent received as services or property is reported at fair market value. For short-term rentals, enter the rent actually received on line 3 and treat platform fees as an expense.
Expense lines the instructions name
Match each cost to its printed label first. These are the lines the 2025 Schedule E instructions explain in detail.
Line 6, auto and travel: the instructions say you can deduct ordinary and necessary auto and travel expenses related to the rental.
Line 10, legal and other professional fees: include fees for tax advice and the preparation of tax forms for the rental. Legal fees to defend title are not deductible here and are added to basis.
Line 12 holds mortgage interest paid to banks and other financial institutions. Line 13 holds other interest, such as interest paid to a person who is not a financial institution, or interest for which no Form 1098 was received.
Line 14, repairs: the instructions say you can deduct amounts paid for repairs and maintenance. An improvement that adds value or extends the property's life must be capitalized, so a new roof or remodel is depreciated, not deducted here.
Line 18, depreciation: the instructions define it as the annual deduction you must take to recover the cost of property with a useful life beyond the tax year. Publication 527 says residential rental property is depreciated over 27.5 years under GDS with the mid-month convention, so a building placed in service in March gets 9.5 months in its first year.
Line 19, other: enter ordinary and necessary expenses not listed on lines 5 through 18.
Personal use and the expense limit
Publication 527 says you use a dwelling unit as a home if you use it for personal purposes more than the greater of 14 days, or 10% of the total days it is rented to others at a fair rental price.
Worked example: a condo rented at fair rent for 300 days and used by the owner's family for 40 days. Ten percent of 300 days is 30 days, and 40 is more than the greater of 14 and 30, so the unit is treated as a home. If the family used it for 25 days, the test is not met.
When the limit applies, Publication 527 says some or all of the excess expenses cannot offset income from other sources. Those excess expenses carry forward and are treated as rental expenses for the same property. The failure mode is recording personal days as zero because the owner calls the property mostly rented.
The passive loss limit and when Form 8582 applies
The Form 8582 instructions say the form is filed by individuals, estates and trusts that have passive activity deductions. The client can skip it only when every condition is met. Rental real estate with active participation must be the only passive activity, there can be no prior-year unallowed losses, the total rental loss must be no more than $25,000 ($12,500 if married filing separately), and modified adjusted gross income must be no more than $100,000 ($50,000 if married filing separately).
The exception also fails for a limited partner or an estate or trust beneficiary, or with current or prior-year unallowed passive credits.
Decision rule: if the client has a rental loss and MAGI above $100,000 means Form 8582 is required. If MAGI is at or under $100,000 and the loss is $25,000 or less with no prior-year unallowed loss, Schedule E can carry the loss alone. Check MAGI before applying the $25,000 allowance, or the deduction is overstated.
The special allowance is limited to 50% of the difference between $150,000 and MAGI. Worked example: MAGI of $120,000 gives half of $30,000, or $15,000. A rental loss of $22,000 leaves $15,000 allowed on line 22 of Schedule E and $7,000 carried forward. At MAGI of $150,000 or more the allowance is zero.
Form 8582 produces the allowed loss on line 22 of Schedule E. The instructions say an activity with net profit and prior-year unallowed losses shows the net profit on line 21 and the allowed loss on line 22. Suspended losses carry forward until they are allowed against passive income, against the special allowance, or when the owner sells the entire interest in a fully taxable transaction to an unrelated party.
A rental is not passive if the owner materially participated and was a real estate professional, which requires more than half of personal services and more than 750 hours in real property trades or businesses.
Form 8825 for the entity return
The instructions for Form 8825 and Schedule A, dated 12/2025, direct gross rents and other rental income to lines 2a and 2b, reported separately. Interest is on line 8, depreciation on line 14 and other deductions on line 17.
Entities required to file Schedule M-3 use Schedule A (Form 8825) for each property and enter the total on line 17. Entities without that requirement enter all other deductions for each property directly on line 17.
The instructions also point to the passive activity limitations in the Form 1065 or Form 1120-S instructions. Failure mode: a partnership's rent is entered on page 1 of Form 1065 instead of Form 8825. The fix is to move it to Form 8825 and carry the result to Schedule K, line 2.
Tax years and dates for the 2026 return
The instructions I checked are the 2025 Schedule E instructions, the 2025 Form 8582 instructions and the Form 8825 instructions dated 12/2025. The 2026 versions were not on the pages I checked, so confirm lines and thresholds when the IRS posts them. The $25,000 allowance and the $100,000 and $150,000 MAGI figures come from the 2025 Form 8582 instructions.
A calendar-year partnership's Form 1065 is due March 15, according to the Form 1065 instructions. The IRS individual filing page lists April 15, 2026, which applies to tax year 2025 returns. Confirm the tax year 2026 individual deadline on that page before giving a client a date.
Questions to send the client
Ask: "Is the rental in your own name, or in an LLC or partnership that files its own return?" A partnership or S corporation return means you need its Form 1065 or 1120-S and the K-1.
Ask: "How many days did you or your family stay in the property for personal use this year, and how many days was it rented at a fair rent?" If personal days are more than the greater of 14 days or 10% of rental days, the expense limit applies.
Ask: "What was your modified adjusted gross income for the year, and did any rental show a loss in a prior year?" MAGI above $100,000 or a loss carried over from a prior year means Form 8582 is needed.