BiggerPockets

Hi,
I would like to know under what circumstances does one file for 8825 vx. Schedule E.

Also I just got a schedule E from a seller. However in the tax line of the form there is no entry. The profit is being shown without the tax entry. Is this possible not to show tax in schedule E? Also how would I know that the numbers are correct and not manipulated. I appreciate any help. Thanks

I agree it doesn't make sense that no property tax is reflected on Sch. E. This should be picked up for the current year's tax, even if it was prepaid the prior calendar year for some reason.

The Sch. E certainly can be fabricated, if you don't get a copy from either the IRS (this is what lenders often do, but unlikely the seller will give you this right), or from their accountant directly (assuming they don't do their own taxes).

Is this a small property (4 units or fewer)?

If so, you probably don't need a schedule e to determine likely income and expenses...I wouldn't trust anything from the seller anyway...

I assume you mean it's a small property...

Why do you need to verify income and expenses? You should be able to figure it out yourself.

For income, do a rental market analysis and see what of similar units are renting for.

Foe expenses, do some research. Taxes can be found easily with your county assessor. Insurance quotes take 15 minutes. For utilities, have the seller give permission for you to be able to get historical data directly from the utility companies. For maintenance and capital expenses, you'll have to assess the condition of the property...get an inspection. For PM, find your own company and get quotes.

In the end, you'll hopefully be a better owner than the guy you're buying from, so don't waste time trying to get his old data...it's probably meaningless...

If the seller is a true developer then you should not expect to see any property tax, property insurance and other property related costs. A developer must roll these costs into the basis of the property and then recognizes income based on there exit strategy.

Thanks Charles and Joel for the feedback. This gives me more insight to the current situation.

Ram, There are two pages to a Schedule E. The first page is to report rental real estate activity. The second page is to report activity from a partnership or an S corp that is reported on a K1 or and SK1. So it depends on which page you are looking at.

Jack, I think you should do your own due diligence like asking for rent rolls and asking for lease copies and proof of payments. Of the tenants are still there, quick interviews. You should also use market research and comps for the rentals as well. That the property was fully rented in the last three years does not indicate what will happen when you purchase so you need an independent income and expense verification. What if there is deferred maintenance and all that not currently reflected on the Schedule E.

"I would like to know under what circumstances does one file for 8825 vx. Schedule E. "

My schedule E has nothing on page 1 and a a single entry on Part II (page 2). This is the total profit I received from my LLC (which filed a form 1065 and gave me a K-1 statement). So all the income and costs are captured separately in the 1065 and filed for the LLC entity.
Form 8825 is part of the supporting documentation for form 1065 "US Return of Partnership Income".

If I did not have an LLC running things, but it was all personal, then I'd be filling in schedule E page 1 with all the same information.