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Old 01-22-2014, 03:28 PM
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Rental Deduction as it relates to Form 8825

This board appears to be a wealth with knowledge. Thanks for allowing me to ask away.

I've been analyzing multiple corporate financial statements and have noticed something unique (at least to me) on a few of them.

I've seen a borrowing entity which operates a single commercial property file two separate 1120S tax returns with Return 1 including form 8825 and Return 2 does not. They are filed under separate LLC's and I believe this is to separate Rental real estate income vs business specific income.

Return 1 is left blank on page one and only includes a Net rental loss/gain on schedule k from the attached form 8825. Statement 2 has a complete breakdown of the business gain and expenses.

The thing I'm having trouble understanding is that the gross rents from Return #1 are included in Return#2 as a rent deduction for line 11. I have no idea how that makes sense. Any ideas or correspondence would be most appreciative. Thanks for listening!



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Old 01-23-2014, 05:07 AM
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Originally Posted by LeonardTrading View Post


#1;I've seen a borrowing entity which operates a single commercial property file two separate 1120S tax returns with Return 1 including form 8825 and Return 2 does not. They are filed under separate LLC's and I believe this is to separate Rental real estate income vs business specific income.

#2;Return 1 is left blank on page one and only includes a Net rental loss/gain on schedule k from the attached form 8825. Statement 2 has a complete breakdown of the business gain and expenses.

The thing I'm having trouble understanding is that the gross rents from Return #1 are included in Return#2 as a rent deduction for line 11. I have no idea how that makes sense. Any ideas or correspondence would be most appreciative. Thanks for listening!
#1;I guess the LLCs taxed as S corps ,as an S Corp, can elect to allocate income and expenses as if the corp's tax year consisted of 2 separate tax years, the first of which ends on the date of the shareholder's termination.
Hence, the tax impact will be the same as two separate returns have been filed but for filing purposes, a single return is filed. If the S Election did not terminate and an election is made under code than a single tax return is filed but income is allocated as if there were two taxable years. This election is made to notify the IRS that this return includes allocation of income based on two separate short year as a result of termination of stockholder interest.I do not understand why the accountant would file a separate tax return;you do not file 2 separate tax returns. Normally 2 short year tax returns will be filed in a situation where the S election is terminated and you are filing a S Corp and a short C Corp tax return.In this case, you will file a S Corp tax return but allocate income on K-1 based on 2 separate tax years.


#2;I guess you can contact the IRS for sure.



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Old 01-23-2014, 09:43 AM
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Yikes, sounds very complex. Thanks for your reply.

As far as the rental income on one turning into the rental expense on the other return, you would recommend me contacting the IRS to find the rational?



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Old 01-23-2014, 09:54 AM
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Originally Posted by LeonardTrading View Post
Yikes, sounds very complex. Thanks for your reply.

As far as the rental income on one turning into the rental expense on the other return, you would recommend me contacting the IRS to find the rational?
Correct for more accuarate info in detail.



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Old 01-23-2014, 12:37 PM
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Ok that's what I'll do. I'm guessing it's something basic. I just came across another one where the borrower reports rental income on Schedule E of Form 1040 yet this exact amount shows up as a rent deduction (line 11) on their 1120S.



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