Form 8825 for a multi-member rental LLC (and the K-1s) (2026)

Why a multi-member rental LLC uses Form 8825, not Schedule E

If you own a US rental property in your own name, or jointly with a spouse filing jointly, you report it directly on Schedule E of your 1040. The LLC changes that. A multi-member LLC is a separate taxpayer for federal reporting. The IRS single-member LLC page is explicit: "A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation" (IRS).

A partnership files Form 1065. If the partnership earns rental real estate income, the detail does not sit on page 1 of the 1065. It sits on Form 8825, which attaches to the 1065. The Form 8825 instructions name the two entity types directly: "Partnerships and S corporations use Form 8825 to report income and deductible expenses from rental real estate activities, including net income (loss) from rental real estate activities that flow through from partnerships, estates, or trusts" (Form 8825 instructions).

So the schedule and the entity match up like this:

The two things people miss: a multi-member LLC is a separate return even if it is a husband-wife LLC in a non-community-property state, and the rental does not go on page 1 of the 1065 (that page is for trade-or-business income).

What goes on Form 8825

Form 8825 is a line-by-line income statement for each rental property the LLC owns (About Form 8825).

Income. Line 2 captures "rental real estate gross rents and other income related to rental real estate activity separately on lines 2a and 2b" (Form 8825 instructions). This is cash collected plus any other rental-related income (laundry fees, pet fees, late fees you kept).

Expenses. Standard rental deductions: advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, interest, repairs, taxes, utilities, wages, and depreciation.

Depreciation (line 14). The instructions note that an entity "may claim a depreciation deduction each year for rental property (except for land, which is not depreciable)" (Form 8825 instructions). Residential US rental property depreciates over 27.5 years straight-line. Form 4562 generally feeds line 14 for property placed in service during the year or where listed property is involved.

Interest expense (line 8). Mortgage interest on the rental goes here. The instructions warn that "see the Instructions for Form 8990, Limitation on Business Interest Expense Under Section 163(j), for more information" (Form 8825 instructions) — most small rental LLCs are under the Section 163(j) gross-receipts threshold, but a growing portfolio can hit it.

Multiple properties. The 8825 has columns for several properties, and the instructions tell you to attach additional pages as needed to list every rental the entity owns (Form 8825 instructions). Each property gets its own column, which is useful if one unit lost money and another made money — the loss and gain are itemised, not just blended.

What does not go on 8825: trade-or-business activities, portfolio income, Section 179 deductions, and items that must flow separately to partners. The instructions list those exclusions directly (Form 8825 instructions).

How the number flows to the K-1 and your 1040

Form 8825's bottom line is net rental real estate income or loss for the LLC. That number has to end up on each partner's own tax return. The route it takes:

1. 8825 totals go up to Form 1065, Schedule K, which is the partnership's summary.
2. Schedule K splits income by type. Net rental real estate income/loss has its own line.
3. Each partner's share, based on the operating agreement, drops into Schedule K-1 Box 2 (Net rental real estate income (loss)).
4. The partner carries Box 2 to Schedule E, Part II of their 1040 — the pass-through section, not the self-rental Part I.

The IRS Form 1065 overview explains the mechanics: "A partnership does not pay tax on its income but 'passes through' any profits or losses to its partners" (About Form 1065). The K-1 is how each partner is told what their share is.

A common error at year three or four is to let TurboTax put the K-1 on Schedule E Part I by mistake. Part I is for rentals you own directly; Part II is for pass-throughs. The IRS reconciles K-1s separately, so the mismatch shows up.

Worked example: two founders in Hyderabad and Austin

Two cousins, Priya in Hyderabad on a long-term work assignment and Rohan in Austin on an H-1B, buy a duplex in Dallas through a Texas LLC. Priya puts in $100,000, Rohan puts in $100,000, 50/50 ownership. Year one:

• Gross rents collected: $42,000.
• Mortgage interest: $18,500.
• Property tax: $7,200.
• Insurance: $1,900.
• Repairs: $3,100.
• Property management: $3,360.
• Depreciation (building basis $300,000, 27.5 years, half-year placed in service): about $5,455 (for the full year it would be $10,909; the first partial year prorates).

Net rental real estate loss on Form 8825 for the year: $42,000 − $39,515 = $2,485 profit before depreciation, then minus $5,455 depreciation = a $2,970 loss.

The 1065 flows that $2,970 loss out: Schedule K-1 Box 2 shows ($1,485) for Priya and ($1,485) for Rohan.

Rohan is a US resident. His loss is passive. (If he is in his first US year, start with our NRI first-year tax checklist to decide his residency position before touching the K-1.) Pub 925 allows up to $25,000 of rental real estate loss against non-passive income if he actively participates and his MAGI is under the phaseout. The publication says: "the maximum special allowance of $25,000 is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000" (Pub 925). Rohan earns $180,000; his MAGI puts him above $150,000, so the $25,000 allowance is zero. His loss is suspended and carried forward.

Priya is a nonresident alien. US-source rental income has two paths: default 30% withholding on gross rents, or a Section 871(d) election to treat it as effectively connected and tax it on a net basis. The IRS nonresident aliens page states: "the payment of U.S. source income that is fixed, determinable, annual, or periodical is taxed at a flat 30 percent (or lower treaty rate) and no deductions are allowed against such income" (IRS). The alternative: elect ECI, file a 1040-NR, and get the deductions. For a loss year this is the only route that lets Priya recognise anything; otherwise withholding is on gross, and losses do not offset.

The deadlines that cost real money

Form 1065 is due the 15th day of the third month after the LLC's year-end. For a calendar-year LLC that is March 15. A six-month extension is available on Form 7004, which the IRS describes as "an automatic 6-month extension of time to file certain business income tax, information, and other returns" (About Form 7004). That moves the deadline to September 15.

The penalty for missing the deadline is per partner, per month. The IRS failure-to-file page lists the current amount: "$245.00" per month, multiplied by the number of partners and the number of months late, up to 12 months (IRS failure-to-file penalty).

For the Dallas duplex LLC, two partners × $245 × 6 months late = $2,940. For a four-partner LLC that forgets for a year, 4 × $245 × 12 = $11,760. There is no "my LLC had no revenue" relief — the penalty is triggered by the late filing, not by whether tax was due.

File the 7004 even if you think you will finish by March 15. The six months of breathing room costs nothing.

State return on top of the federal 1065

A rental LLC with real property triggers a state return in the state the property sits in, and often in each partner's resident state. Texas has no state income tax but has an LLC franchise tax with a no-tax-due threshold; California LLCs owe the $800 annual tax plus a gross-receipts fee. Each state has its own partnership return and its own K-1 equivalent. The federal 1065 is the backbone; the state filings sit on top.

For a partner based in India, this is where it gets expensive if ignored. California will chase a nonresident partner for their share of California-source rental income. The LLC can file a composite return or withhold at source; otherwise the partner files a 540NR. The India side also matters: see our write-ups on depreciating a rental property on the US return and reporting India income on a US return for the partner-level mechanics.

When the LLC should elect S corp (and why rentals usually should not)

Partnerships can elect S corp status on Form 2553. For a rental LLC this is almost always a bad call. Rental income is not subject to self-employment tax even in a partnership, so there is no SE-tax saving to engineer. An S corp election also loses the ability to specially allocate items in a way partnerships can, and it adds payroll complexity if any owner is active. The IRS pass-through overview and Pub 925 both treat rental real estate as a separate passive category, which already does most of what founders think the S corp election would do.

The one case worth examining: an LLC that is partly rental and partly short-term rental (average stay under 7 days) with substantial services, which looks more like a hotel business. That is a trade or business, not rental real estate, and goes on 1065 page 1, not 8825. Even there, the S corp election is a detailed call, not a reflex.

How we handle this at Lesser

For a two-to-four-owner rental LLC, the annual package is a federal 1065 with Form 8825, Form 4562 for depreciation, each partner's K-1, plus the state partnership return. Lesser's flat fee for the rental LLC package starts at $100 per LLC; our depreciation worksheet and property-level P&L template are the two tools that keep the preparation time predictable. If you own US rentals through an LLC and are tired of guessing which column goes where, this is the work we do every spring: see how Lesser works for real estate owners.