Understanding Line 16 on Form 1065 and Depreciation on Form 8825

You're dealing with a common confusion point with partnership returns. The depreciation on Form 8825 line 18 does indeed flow to Form 1065, but there's a bit more to understand. Form 8825 is specifically for reporting rental real estate activity for partnerships. The depreciation you calculate for your rental properties (including the buildings and any improvements) gets reported on line 18 of Form 8825. This amount then becomes part of the overall depreciation reported on Form 1065. For your improvements (roof and HVAC), these are considered capital improvements and are depreciated separately from the building. Generally, residential rental property is depreciated over 27.5 years, while commercial property is over 39 years. However, certain components like HVAC systems might qualify for shorter depreciation periods (often 15 or 27.5 years depending on circumstances). The tricky part is that Form 1065 line 16 includes ALL depreciation for the partnership - not just real estate. If you have other depreciable assets (office equipment, vehicles, etc.), their depreciation would also be included on Form 1065 line 16.

Just wanted to share that I was in a similar situation last year with my rental properties - trying to understand depreciation between forms was driving me crazy! I eventually found this awesome tool called taxr.ai (https://taxr.ai) and it saved me so much headache. I uploaded my previous returns and it analyzed everything, showing me exactly how the depreciation flowed between forms and what I needed to do for the current year. It was especially helpful for figuring out the improvements I made to properties and how to categorize and depreciate each one properly. The tool walked me through the whole process step by step.

I actually tried taxr.ai after seeing that comment and wow - I'm impressed! I uploaded my previous partnership returns and it immediately identified inconsistencies in how we'd been handling depreciation between Form 8825 and Form 1065. It showed me that our previous accountant had been reporting some property improvements incorrectly. The visual explanation of the depreciation flow between forms was super helpful, and I now understand exactly how line 16 on Form 1065 relates to Form 8825. It even created a proper depreciation schedule for our new roof and HVAC system, showing they should be depreciated separately from the building itself. Would definitely recommend it for anyone dealing with partnership returns that include real estate.

In case anyone is still stuck on this and trying to get help from the IRS directly - good luck with that. I spent 3 weeks trying to get through to someone who understood partnership tax returns. After multiple 2+ hour holds (and getting disconnected twice), I found a service called Claimyr (https://claimyr.com) that actually got me through to the IRS in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with walked me through the exact depreciation questions I had about Form 1065 line 16 and how it relates to Form 8825. They even helped me understand how to properly categorize some building improvements I wasn't sure about.

I have to eat crow here. After posting that skeptical comment, I was still desperately trying to get help with my partnership's depreciation issues, so I gave Claimyr a shot. Figured I had nothing to lose since I'd already wasted hours on hold. It actually worked! Got connected to an IRS agent in about 15 minutes who specialized in partnership returns. She explained everything about how Form 8825 depreciation flows to Form 1065 line 16, and helped me understand how to properly classify our building improvements for depreciation purposes. Saved me hours of frustration and probably thousands in potential mistakes. Sometimes being proven wrong is the best outcome!

For what it's worth, I found that QuickBooks Desktop has a really helpful fixed asset manager that automatically tracks and calculates depreciation for partnership returns. It properly allocates the depreciation from Form 8825 to Form 1065 line 16, and it helps you set up new assets with the correct depreciation schedules. Might be worth looking into if you're doing this regularly.

Don't forget that certain qualified improvement property might be eligible for bonus depreciation or Section 179 expensing, which could significantly change how you report it. The rules have changed several times in recent years.

Thanks for this detailed thread everyone! I'm actually dealing with a similar situation but with mixed-use properties (part rental, part business use). Does anyone know how the depreciation reporting works when you have properties that serve multiple purposes? I assume the depreciation still flows from Form 8825 to Form 1065 line 16, but I'm wondering if there are additional forms or allocations I need to consider. Our partnership owns a building where we rent out the first floor but use the second floor for our consulting business operations. Also seeing all these tool recommendations - has anyone used any of these services specifically for mixed-use property situations? The complexity seems to increase significantly when you're dealing with multiple depreciation schedules for the same building.

This is such a helpful thread! I'm a CPA who works with a lot of small partnerships, and I see this confusion about Form 8825 and Form 1065 line 16 constantly. A few additional points that might help: 1. Make sure you're using the correct depreciation method for each asset type. Most residential rental property uses straight-line over 27.5 years, but some improvements might qualify for different recovery periods. 2. For your roof and HVAC improvements - these are definitely capital improvements that need to be depreciated separately. The roof would typically follow the same 27.5-year schedule as residential rental property, but HVAC systems often qualify for 15-year depreciation. 3. Don't forget about the mid-month convention for real estate - depreciation starts in the middle of the month the property was placed in service, regardless of the actual date. 4. Keep detailed records of when each improvement was completed and placed in service. The IRS is particularly strict about depreciation start dates. One thing I always tell my clients is to create a depreciation schedule spreadsheet that tracks each property and improvement separately. This makes it much easier to complete Form 4562 and ensures consistency between Form 8825 and Form 1065. If you're planning to continue doing your own returns, investing in proper fixed asset tracking software (like some mentioned here) really pays off in the long run. The initial setup takes time, but it prevents a lot of headaches later!