Generally, unless you meet the qualifications to be considered a real estate professional, your rental income is passive and should be reported onto a Schedule E.
If you meet the qualifications to be considered a real estate professional, your rental income is not considered to be passive, and can be reported onto a Schedule C. On the Schedule C, you should report your rental income and any relating expenses or deductions.
IRS Publication 527, provides additional information on correctly reporting rental income.
Do I qualify as a Real Estate Professional?
According to the IRS, “you qualify as a real estate professional for the tax year if you meet both of the following requirements.
- More than half of the personal services you perform in all trades or businesses during the tax year 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.”
See our other articles about the deductions that can be claimed as a real estate professional.
What is the difference in a Schedule C and Schedule E?
Let's look at the difference between a Schedule C and a Schedule E.
- Report income or loss from a business you operated or a profession you practiced as a sole proprietor
- Passive activity losses are not limited on the Schedule C. Schedule C income is subject to self-employment tax.
- Report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits (REMICs).
- Passive activity losses are limited on the Schedule E. These losses are not deductible unless you have other income from passive activities to offset them. You can read more on the passive activity loss limitations, here.
How do I report this in the program?
To report rental income on the Schedule E, follow this path:
- Federal Section
- Supplemental Income and Loss (Schedule E)
To report rental income on the Schedule C, follow this path:
- Federal Section
- Profit or Loss from Business (Schedule C)