Multi-Property Real Estate Form 8825 Help Guide

Overview

Form 8825 is used to report rental real estate income and expenses for partnerships, S corporations, and certain other entities. When managing multiple properties (also referred to as multi-entity or multi-activity setups), there are two primary methods for organizing your accounting data to prepare Form 8825 effectively: the Vertical Method and the Horizontal Method.

Method 1: Vertical Method (Multi-Property by Chart of Accounts)

What is it?

This approach, also known as the "trial balance method," "chart of accounts method," or "stacked trial balance," involves creating separate chart of account codes for each property/entity/activity and each expense category.

How it works:

Each property/entity/activity gets its own set of duplicate account codes
For example, if you have three properties, you would have three separate "Repairs & Maintenance" accounts (one for each property/entity)
This creates a long trial balance with duplicate accounts organized by property/entity/activity
We also refer to this as a "multi-property," "multi-entity," or "multi-activity" chart of accounts

Advantages:

Easy to set up - Simple to implement in most accounting systems
Cost-effective - Inexpensive way to establish a multi-property/multi-entity general ledger
Currently available - This method is released and ready to use

Disadvantages:

Limited reporting capabilities - The reporting options for this method are not as robust
Chart of accounts complexity - Can result in a very long and potentially confusing chart of accounts

Method 2: Horizontal Method (Multi-Property by Accounting Segmentation)

What is it?

This method uses your accounting system's built-in segmentation features to track properties/entities/activities as separate segments or dimensions within the same chart of accounts.

How it works:

Different accounting software platforms use different terminology for segmentation:

Xero

Uses "Tracking Categories"
Provides two tracking categories
Each tracking category can have multiple options
Properties/entities can be tracked as one category, with expense types as subcategories

QuickBooks Online

Uses "Classes" and "Locations"
From an API standpoint, classes and locations function similarly (both act as departments)
Properties/entities can be set up as either classes or locations

Advantages:

Better reporting - More sophisticated reporting capabilities
Cleaner chart of accounts - Maintains a standard chart of accounts without duplication
Flexible segmentation - Can slice and dice data by property/entity/activity, expense type, or other dimensions

Disadvantages:

More complex setup - Requires understanding of your accounting system's segmentation features
Coming soon - This method is currently in development and will be released in the near future

Which Method Should You Choose?

Choose the Vertical Method if:

You need a solution immediately
You prefer simple, straightforward setup
Basic reporting meets your needs
You want the most cost-effective option

Choose the Horizontal Method when available if:

You need advanced reporting capabilities
You want to maintain a clean chart of accounts structure
You're comfortable with more complex accounting setup
You can wait for the feature release

Implementation Timeline

Vertical Method (Multi-Property by COA): Currently available and released
Horizontal Method (Multi-Property by Segmentation): In development, releasing soon

Getting Started

Regardless of which method you choose, ensure that:

Each property's/entity's income and expenses are properly segregated
All rental income is accurately recorded
Allowable expenses are properly categorized
Depreciation is calculated correctly for each property/entity
Your data is organized in a way that facilitates Form 8825 preparation

Support

For specific implementation questions or assistance with setting up either method, please contact our support team. We can help you determine which approach best fits your multi-property/multi-entity/multi-activity portfolio and accounting system.