Schedule E 1040

Most real estate investors must file Schedule E as part of their income taxes, whether professional or armchair investors, those who own apartment complexes or rent rooms. This article will cover the purpose of Schedule E and its instructions.

Schedule E (1040) is used by individual businesses to report any additional income sources, such as rental real estate income or losses, royalties, partnerships, S corporations, estates, or trusts, as well as residual interests from Real Estate Mortgage Investment Conduits (REMICs). Business owners with non-taxable supplemental income earned outside their core business activities must also file Schedule E in their personal tax returns. If they’re self-employed individuals, Schedule E must also be filed.

Passive property owners can generate passive income by providing basic services to tenants, such as heating, lighting, water supply, and trash collection. While this may qualify for passive income status, providing any services beyond these minimum standards should file a Schedule C to note this additional income. As well as reporting your supplemental income, the form will also require you to report expenses associated with your business, such as advertising, utilities, repairs, maintenance, insurance premiums, depreciation, etc.

How to Fill Out Schedule E
Schedule E 1040 1

What is Passive Property?

The IRS considers most real estate investments passive – that is, you receive no compensation from participating in its management – however, if you provide services directly to tenants or are using managing it as your main business activity, then an alternate Schedule (Schedule C or Schedule D) might apply instead of filing Form E. However, there may be exceptions to this general rule, and if you’re uncertain if you need to file either Schedule E or Schedule C forms, it would be wise to consult your financial advisor or tax accountant.

First, decide which properties to report on your Schedule E form. This document breaks down rental property income into 15 expense categories that should be self-explanatory, such as advertising expenses; others might need some further explanation, like depreciation costs.

How to Fill Out Schedule E?

Filling out your Schedule E requires you to indicate how much rental income was generated from each property during the year, including both actual income received and any extra earnings, such as late tenant payments reported on January’s Schedule E form.

Your losses must also be reported; generally speaking, the IRS limits deductibility based on risk. So if a partnership loses $10,000 over a year and you only bear responsibility for part of its reimbursement costs, deduct only up to $50,000 as your deduction allowance.

  1. Fill out Part I – Income or Loss From Rental Real Estate and Royalties section.
  2. Choose the type of property
  3. Fill out the Income section (rents and royalties received)
  4. Fill out Expenses Lines, enter the total expenses amount (5-19)
  5. Enter total income on Line 24.
  6. Enter total losses on Line 25
  7. Total rental real estate and royalty income or (loss) on line 26.
  1. Complete Part II – Income or Loss From Partnerships and S Corporations.
  2. Complete the Passive Income and Loss section. (A-D). Attach Form 8582 if required. Enter passive income from Schedule K-1.
  3. Complete the Nonpassive Income and Loss section. (A-D). 
  • Enter nonpassive loss allowed (Schedule K-1)
  • Enter Section 179 expense deduction from Form 4562
  • Enter Nonpassive income from Schedule K-1.
  1. Complete Part III Income or Loss From Estates and Trusts
  2. (c)Passive Income and Loss section. Passive deduction or loss allowed. Attach Form 8582 if required.
  3. (d) Passive income from Schedule K-1
  4. Enter Nonpassive Income and Loss amount.
  5. (e) Enter deduction or loss from Schedule K-1
  6. (f) enter Other income from Schedule K-1
  7. Combine lines 35-36 to figure Total Estate and Trust Income or Loss.
  8. Complete Part IV Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)—Residual Holder, if required.

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