Schedule E (Form 1040), Supplemental Income and Loss, is used to report income and losses from sources other than wages, self-employment, or investments reported elsewhere on a tax return. Most taxpayers use Schedule E to report rental property income and expenses, but the form is also used for royalties, partnerships, S corporations, estates, trusts, and certain interests in Real Estate Mortgage Investment Conduits (REMICs). If you own rental real estate, receive a Schedule K-1, or collect royalty income, there's a good chance Schedule E belongs somewhere on your tax return.
What Does Schedule E Report?
Schedule E is divided into several sections, with each part reporting a different type of supplemental income or loss.
Part I: Income or Loss From Rental Real Estate and Royalties
This is the section most taxpayers use.
Part I is used to:
- Report rental property income and expenses
- Report royalty income and expenses
- Calculate the profit or loss for each rental or royalty activity
- Determine the net rental or royalty income that flows to the tax return
If you own one or more rental properties, you'll typically complete this section.
Part II: Income or Loss From Partnerships and S Corporations
Part II reports information received on Schedule K-1 from:
- Partnerships (Form 1065)
- S Corporations (Form 1120-S)
Income, losses, deductions, and credits from these business interests are entered here.
Part III: Income or Loss From Estates and Trusts
If you receive a Schedule K-1 (Form 1041) from an estate or trust, the information is reported in Part III.
This may include:
- Income
- Deductions
- Capital gains
- Losses
- Credits
Part IV: Income or Loss From REMICs
Part IV reports income or losses from residual interests in Real Estate Mortgage Investment Conduits (REMICs).
Most taxpayers will never need this section.
Part V: Summary
Part V totals the income and losses reported throughout Schedule E and transfers the applicable amounts to Form 1040.
Understanding Rental Activities and Passive Activity Rules
For tax purposes, rental activities are generally treated as passive activities. This means that special rules may limit the amount of rental losses you can deduct in a given year. How those rules apply depends largely on your level of participation in the rental activity.
Active Participation in a Rental Property
You may qualify as an active participant in a rental property if:
- You own at least 10% of the property, and
- You make management decisions in a significant and bona fide way
Examples of management decisions include:
- Approving tenants
- Setting rental terms
- Authorizing repairs
- Approving property expenses
Active participation can affect how rental losses are treated and whether certain loss allowances are available.
How to Update Active Participation in the Program
- Navigate to your Schedule E entry.
- Select the three-dot menu next to the property.
- Select Rents & Royalties Basic Information.
- Check I actively participated in this rental activity.
Real Estate Professional Status
While rental activities are normally considered passive, taxpayers who qualify as real estate professionals may receive different treatment under the passive activity rules.
You generally qualify as a real estate professional if both of the following requirements are met:
- More than half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate.
- You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.
Meeting these requirements doesn't automatically change where rental income is reported. Rental income is still generally reported on Schedule E. Instead, real estate professional status primarily affects how rental losses are treated for tax purposes.
How to Update Real Estate Professional Status in the Program
- Navigate to your Schedule E entry.
- Select the three-dot menu next to the property.
- Select Rents & Royalties Basic Information.
- Check I am a real estate professional or sold/disposed of this property during the tax year.
How to Enter a Schedule E in the Program
Each rental property should be entered separately so income, expenses, depreciation, and participation information can be tracked correctly.
To access Schedule E:
- Select Federal.
- Select Income – Select My Forms.
- Select Profit or Loss from Rentals and Royalties (Reported on Schedule E).