Can Rental Income on 1099-MISC Box 3 be Reported on Form 8825 Instead of 1065?

Thanks for the explanation! But I'm confused about something - if we report this income on Form 8825, do we still need to somehow acknowledge the 1099-MISC somewhere on Form 1065 itself? Like, is there a checkbox or something to show we got a 1099 but are reporting it elsewhere? Also, will this cause an IRS matching issue since they'll be looking for that 1099-MISC income on the 1065?

You don't need to specifically acknowledge the 1099-MISC on Form 1065 itself. What matters is that the total income reported on all schedules of the partnership return matches or exceeds what's reported on the 1099s received. The IRS matching program isn't looking for specific line matches but rather that all income reported to them via 1099s is included somewhere on your tax return. Since Form 8825 ultimately flows to Form 1065, the income is properly accounted for. Just ensure you have good documentation explaining that the Box 3 income represents rental income in case of questions.

The system is smart enough to understand different types of income. When I uploaded my documents, it actually prompted me to clarify which Box 3 payments were for rental activities and which were for other services. Then it showed the correct allocation between forms. Their system combines AI analysis with tax professional review, so you're not just getting algorithm suggestions. I was initially concerned about the same thing, but they provided actual tax authority references supporting their guidance. It's definitely not just a basic algorithm making guesses about complicated partnership issues.

How does taxr.ai handle situations where you have BOTH legitimate Box 3 "other income" that should go on 1065 AND rental income that should go on 8825? Does it help separate these out or would I need to do that manually before uploading?

I'm skeptical about these AI tax tools. Did you get an actual human review or was it just algorithms? Seems risky to trust AI with partnership tax treatment when the IRS is increasing audit rates for partnerships.

The system is smart enough to understand different types of income. When I uploaded my documents, it actually prompted me to clarify which Box 3 payments were for rental activities and which were for other services. Then it showed the correct allocation between forms. Their system combines AI analysis with tax

Wait, I don't understand - how does this actually work? Can they really get you through to the IRS faster than calling directly? The IRS wait times are insane right now.

Yeah right. Sounds like BS to me. Nobody gets through to the IRS these days in 20 minutes. I've been calling for 3 weeks on this exact issue and can't get a human. What's the catch here?

It works by using a system that navigates the IRS phone tree and waits on hold for you. When they reach a human agent, they call you and connect you directly to that agent. No magic, just technology that waits on hold so you don't have to. The catch is that you still need to be prepared with your specific questions when they connect you. In my case, I had my question about 1099-MISC Box 3 income ready to go, along with all the partnership details the agent needed. Makes the call much more productive when you finally get through.

This is super helpful! Do you just attach this as a PDF statement to your e-filed return, or is there a specific form you use for this reconciliation?

I attach it as a PDF statement to the e-filed return. There's no specific form for this type of reconciliation. Just create a simple document with your partnership name and EIN at the top, then the explanation text, and attach it as "Supplemental Information" or "Other Information" when e-filing. Some tax software has a specific place to enter these explanations that will generate the attachment automatically. But a simple PDF works fine if your software doesn't have that feature.

We actually did get a notice last year! The IRS computer flagged a "potential income discrepancy" because they were looking for the Box 3 amount on specific lines of Form 1065. We responded with a letter explaining that the income was rental income reported on Form 8825 (with line references) and included copies of our booking statements showing these were property rentals. They closed the issue without further questions. Just make sure your explanation is clear and you have documentation.

That's really helpful to know! Thanks for sharing your real experience. I'll make sure to have solid documentation ready in case we get a similar notice. Did you respond to the notice yourself or have your accountant handle it?

Our accountant drafted the response, but we had to provide all the backup documentation showing these were actually rental payments. The key was having the platform statements that clearly showed these were payments for specific rental properties. Our accountant said the IRS sees this issue frequently with vacation rental partnerships using platforms like Airbnb, VRBO, etc.

Omg that's a really good point I hadn't even considered! We are on accrual basis, and we definitely have December bookings that get paid out in January. Now I'm worried about potential mismatches. How did you handle this in your case?

We included a separate reconciliation schedule that showed: 1) income per 1099s received for the tax year, 2) plus accrued income from prior year paid in current year, 3) minus income accrued in current year but paid in next year, 4) equals income reported on tax return. Basically you want to show the math of how you get from your 1099 amounts to what's on your return. We also noted which specific properties had timing differences. It's a bit more work, but it creates a clear audit trail.