Schedule E: Reporting rental income on Schedule E

What is Schedule E: Supplemental Income and Loss?

The IRS has an alphabet soup of “schedule” forms for reporting specific types of income. Schedule C is for income from sole proprietorships. Schedule D is for capital gains and losses. In this article, we’ll go over Schedule E, which is for interest and ordinary dividends.

Schedule E is the IRS form for reporting income from a variety of other specific sources, including but not limited to:

• Rental real estate activity.
• Mining, oil, and gas royalties.
• Passive income from owning, but not operating, a business in whole or in part.
• Residual income from trusts, estates, and similar activities.
• Earnings from partnerships and corporations where you actively or materially participate in the business.

You might notice that, with a couple of exceptions, this list focuses on income from passive investments—that is, income you get from activities that don’t require you to do significant work in the business or investment.

Part I: Real estate activity and royalty income

You use Part I of Schedule E to report income from real estate investments and royalties from mining, oil, and gas investments.

You can enter up to 3 properties or sources of rental or royalty income on one Schedule E form. If you have more than 3 properties or sources to report, you will need to file multiple Schedule E forms with a "master" Schedule E that has lines 23a through 26 completed (instead of completing these lines for each Schedule E).

On Line 1a, you report the address of each income source.

On Line 1b, you indicate the property type(s). You must use one of these eight types of properties:

• Single-family residence
• Multi-family residence
• Vacation/short-term rental
• Commercial
• Land
• Royalties
• Self-Rental
• Other

Use Line 2 if the activity is rental property. Report the number of days the property was rented out, as well as how many days you or members of your family personally used the property. If the rental income comes from a qualified joint venture for a married couple—that is, both spouses own the property—you must check the “QJV” box on line 2.

On Line 3, report the gross (or total) rent you received for each property. If you are reporting royalties, record the gross amount you received on Line 4.

Lines 5-19 are to report expenses related to generating and collecting the income, as well as protection and maintenance. These expenses include, but are not limited to:

• Legal fees,
• Cleaning,
• Commissions paid to real estate brokers or rental apps,
• Insurance,
• Management fees,
• Property taxes,
• Repairs to the property,
• Depreciation, including furnishing and appliances for the property, or depletion expenses,
• Supplies, and

Line 20 is the sum of your expenses for each income source, and Line 21 is the difference between your income (Line 3 or 4) and your expenses on Line 20. This is called a tentative profit or loss. If you have a loss, you may need to file Form 6198, which will help you determine how much of your loss you can deduct from your taxes. The deductible portion is reported on Line 22.

You use Lines 23a – e to separate out certain items as needed for other tax rules and forms. (If you’re starting to think you want a Tax Pro to handle all these details, we’re here to help.)

• 23a is for total rent, often reported on a Form 1099-MISC, box 1 or a Form 1099-K.
• 23b is for total royalties, often reported on a Form 1099-MISC, box 2.
• 23c is for total mortgage interest, often reported on Form 1098.
• 23d is for total depreciation, often reported on Form 4562.
• 23e is for your total expenses for all properties.

On Line 24, you add up the positive net rental and royalty income, while you report total losses on line 25.

Combine Lines 24 and 25 together, remembering that Line 25 is actually a negative number that you subtract from Line 24. Put your total real estate or royalty income on Line 26.

If you do not have any items to report in Parts II, III, IV, or V, you’re done.

Part II: Income and losses from partnerships and corporations

If you receive a Form K-1 reporting income you received from owning an S corporation or partnership, you need to complete Part II of Schedule E. Similar to Part I, you can enter up to four Forms K-1 on one Schedule E and will need to use additional Schedule E forms if you have more than four K-1s.

Enter the name of the partnership or corporation on Line 28, along with other requested information such as your employer identification number (EIN).

You must classify the income you’re reporting as coming from a passive or non-passive source. It’s passive if you are only an investor, not materially participating in the operation of the business. You must use Form 8582 to compute any limitations on your losses from these activities, and then report your total income or loss on Line 32.

This can get tricky, and the rules can be hard to understand. You might want to work with a Jackson Hewitt Tax Pro to make sure you get it right.

Parts III, IV, and V: Estate and trust income, REMICs, and summation of schedule E

Part III of Schedule E, starting on Line 33, reports income or losses you have from estates and trusts. You need to complete this section if you receive a Form K-1 from an estate or trust. As with business income in Part II, you need to differentiate between passive and non-passive activity. Passive income is income you receive without being actively involved (e.g., you receive income as a beneficiary of an estate). Non-passive income includes income such as payments for being an executor of an estate, or fees you receive as trustee of a trust.

Lines 34-36 are there to summarize information from Line 33.

On Line 37, report your total income or loss from your trust and income activity.

In Part IV, you report income from real estate mortgage investment conduits (REMICs). If you need to complete this section, you will use the information included on quarterly Schedule Qs on Line 38. Report your total on Line 39.

Finally, Part V is where you sum things up. It starts with Line 40, where you report any farm rental income or less from Form 4835.

Then, you complete your Schedule E as follows:

• Calculate your total income or loss from Lines 26, 32, 37, 39, and 40 and put it on Line 41. You will also report it on IRS Form 1040, Schedule 1, Line 5.
• Reconcile your farming or fishing income on Line 42, using the forms mentioned on the Line. If you’re not sure if this applies to you, there’s a good chance it doesn’t but a Jackson Hewitt Tax Pro can make sure.
• Real estate professionals need to complete Line 43.

Schedule E covers a lot of ground and can get confusing. If you need to file one, or if you’re not sure, a Tax Pro at Jackson Hewitt will help you get all the details right.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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