Form 1120-S business activity change if income is 0 from previous business but still own rental?

Yes, you should update your business activity code to accurately reflect your current operations. Since you've sold the service business and now only have rental activities, changing the code to real estate would be appropriate. The business activity code on Form 1120-S is meant to identify the primary business activity and source of income. When your primary activity changes, the code should be updated accordingly. The IRS uses these codes for statistical purposes and to help process returns correctly. Don't worry about your EIN - it's tied to your entity, not to a specific business activity. Your EIN will remain valid even when you change the business activity code. The IRS understands that businesses evolve and change their activities over time.

I went through something similar last year and was totally stressed about it. I had switched from consulting to property management and was worried about changing codes. I found this tool called taxr.ai (https://taxr.ai) that helped me figure out the right business codes and how to handle the transition without raising red flags. It analyzed my previous returns and business structure, then gave specific guidance for my situation. The tool pointed out that changing business activity codes is actually routine and explained exactly how to document it correctly on my return. Saved me from paying my CPA an extra $300 just to ask about this one issue!

I was really skeptical about taxr.ai at first, but I decided to try it when I was struggling with my S-corp that had shifted from retail to primarily online services. The analysis it provided was surprisingly detailed - it identified that I needed to change my business activity code and walked me through exactly how to handle it on my 1120-S. What impressed me most was how it caught a potential issue with my asset depreciation schedule that would have been problematic after changing business codes. It gave me specific instructions for my accountant that saved us both time and prevented a potential audit trigger. I'm definitely using it again this year as I've added some rental income to my business mix.

If you're still having trouble reaching the IRS for confirmation on this, check out Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS trying to get clarification about changing business codes on my S-corp return. I found this service that got me connected to an actual IRS agent in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c but basically they use some tech to navigate the IRS phone system and get you in the queue faster. I was super frustrated after multiple failed attempts to reach someone, but this actually worked. The agent confirmed exactly what I needed to do with my business activity code change and answered some other S-corp questions I had.

I want to eat my words about Claimyr. After my skeptical comment, I decided to try it myself because I was desperate to talk to someone at the IRS about my S-corp issues. I've been trying for WEEKS to get through on my own with no luck. It actually worked exactly as advertised. I got a call back when they reached the queue, and was connected to an IRS representative in about 35 minutes. The agent confirmed that changing my business activity code was the right move since my primary income source had changed, and he also answered questions about my passive activity losses that I've been confused about for months. I'm genuinely surprised and impressed.

You definitely need to change the code! I didn't update mine after shifting from retail to wholesale and ended up with a letter from the IRS questioning the mismatch between my reported income types and business code. Not a full audit but still a headache to resolve. The business code should reflect your primary source of income or business activity. Since your only income now is from the rental property, you should use a real estate rental code. As others mentioned, look at the 531110 or 531120 codes depending on your property type.

I'm confused about something - if the S-corp owns a disregarded entity that has the rental, why are you even filing Form 8825? Shouldn't the rental income just be reported directly on the 1120-S since the disregarded entity doesn't exist for tax purposes?

I've been through this exact scenario! When I transitioned my S-corp from consulting to rental real estate, I was also worried about changing the business activity code mid-stream. Here's what I learned: You absolutely should update the code to reflect your current primary activity. Since rental income is now your only source of revenue, using a service code would be misleading and could potentially trigger correspondence from the IRS down the line. For the specific code, I used 531110 (Lessors of Residential Buildings and Dwellings) for my residential rental property. If you have commercial property, 531120 would be more appropriate. The change is as simple as entering the new code on your next 1120-S - no additional forms or notifications required. One thing to consider: make sure your rental activity documentation is solid since this will now be your primary business activity. Keep detailed records of rental income, expenses, and any capital improvements since the IRS may scrutinize rental activities more closely than other business types. Your EIN stays the same regardless of the activity change, so don't worry about any registration mismatches. The IRS expects businesses to evolve over time.

I'm dealing with a similar situation right now and wanted to add something that might be helpful. When you change your business activity code from service to real estate, make sure you also review your depreciation schedules if you have any assets from the old business that you're still depreciating. I ran into an issue where some of my old business equipment was still being depreciated under the service business classification, but after changing to real estate, the IRS questioned whether those assets were still being used in the business or if they should be treated as personal use items. It wasn't a huge deal, but I had to provide documentation showing that the computer equipment was still being used for managing the rental property business. Also, since you're now primarily in real estate, you might want to look into whether you qualify for any real estate professional tax benefits if you're spending significant time on the rental activity. The rules are pretty specific, but if you meet them, there could be some tax advantages with passive activity loss limitations. The business activity code change itself is straightforward - just use the new code on your next return. But these related considerations might save you some headaches down the road.