First thing you need to determine is if "services" are provided. Maid service and meals are the most common, but there could be other factors that determine if "services" are provided. For the rest of my comments, I will assume that "services" are NOT being provided.
It needs to be on a Partnership return (Form 1065): The two options are Form 8825 (which is part of the 1065), or on page 1 of the 1065. It is not an option to enter the rental on page 1 of Schedule E of your personal tax return.
- Although I personally think Form 8825 makes most sense, the Instructions for 8825 may make that approach questionable.
- If you report it on the 8825, I suspect when you enter the K-1 on your personal tax return that it will be difficult to tell the program it is NOT passive income.
- If you report it on page 1 of the 1065, it may be tricky to tell the program it is NOT subject to SE tax (it should not populate Box 14 of the K-1.
In either case, when you enter the K-1 on your personal tax return, the amounts will flow to page 2 of Schedule E on your personal tax return.
