Schedule E: Supplemental Income and Loss
Reports income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and REMICs.
Overview
Schedule E, Supplemental Income and Loss, is used to report income and losses from rental real estate, royalties, partnerships, S corporations, estates, trusts, and REMICs (Real Estate Mortgage Investment Conduits). It is one of the most versatile schedules, covering multiple types of supplemental income.
For most filers, Schedule E is primarily used to report rental real estate income and expenses. If you own rental property — whether it's a house, apartment, condo, or commercial space — you report the rental income and deductible expenses on Part I of this schedule. Common deductible expenses include mortgage interest, property taxes, insurance, repairs, depreciation, and property management fees.
Parts II through IV of Schedule E report pass-through income from partnerships (Schedule K-1 from Form 1065), S corporations (Schedule K-1 from Form 1120-S), estates and trusts (Schedule K-1 from Form 1041), and REMICs. The net income or loss from Schedule E flows to Schedule 1 and ultimately to Form 1040.
Who Files This Form?
You must file Schedule E if you received rental income, royalty income, or pass-through income from a partnership, S corporation, estate, or trust. For rental real estate, you file Schedule E whether the property produced a profit or a loss.
If you provide substantial services to tenants (such as daily maid service or hotel-like services), the income may need to be reported on Schedule C instead of Schedule E. If you rent out a vacation home that you also use personally, special rules limit the deductions you can claim based on the ratio of rental days to personal use days.
Key Fields
Line 3: Rents received
Total rental income collected during the year, including rent, advance rent, and security deposits kept.
Line 5: Advertising
Costs to advertise the rental property, such as online listings, signs, and printed ads.
Line 9: Insurance
Premiums for property insurance, liability insurance, and landlord insurance.
Line 12: Mortgage interest paid
Interest on loans used to purchase, improve, or maintain the rental property. Reported on Form 1098.
Line 16: Taxes
Real estate property taxes on the rental property. Not subject to the $10,000 SALT cap that applies to personal taxes on Schedule A.
Line 18: Depreciation
The annual depreciation deduction for the rental building (not land). Residential rental property is depreciated over 27.5 years using the straight-line method.
Line 20: Total expenses
The sum of all deductible rental expenses.
Line 21: Net rental income or loss
Rents received minus total expenses. Losses may be subject to passive activity limitations.
Filing Deadlines
April 15
October 15
Filed with Form 1040; subject to the same failure-to-file and failure-to-pay penalties.
Step-by-Step Instructions
- 1
List each rental property separately on Schedule E, Part I (up to 3 properties per schedule; use additional copies for more).
- 2
Report all rental income received, including rent, late fees, and non-refundable deposits.
- 3
Itemize deductible expenses for each property: mortgage interest, taxes, insurance, repairs, maintenance, management fees, utilities, etc.
- 4
Calculate depreciation for the building using Form 4562. Residential rental property depreciates over 27.5 years.
- 5
Calculate net income or loss for each property (Line 21).
- 6
If you have a net loss, determine if you qualify for the $25,000 special allowance for active participation in rental activities.
- 7
Complete Parts II-IV if you have pass-through income from partnerships, S corporations, or estates/trusts.
- 8
Transfer the total from Schedule E to Schedule 1, Line 5 of Form 1040.
Common Mistakes to Avoid
Not claiming depreciation
Depreciation is required, not optional. Even if you don't claim it, the IRS will reduce your basis by the amount you could have deducted when you sell the property (depreciation recapture).
Confusing repairs and improvements
Repairs (fixing a leak, painting) are fully deductible in the current year. Improvements (new roof, kitchen remodel) must be capitalized and depreciated over time.
Ignoring passive activity loss rules
Rental losses are passive and can generally only offset passive income. An exception allows up to $25,000 in losses if you actively participate and your AGI is below $100,000 (phased out between $100,000-$150,000).
Not keeping proper records
Maintain records of all rental income and expenses, including receipts, bank statements, and lease agreements. Keep records for at least 3 years after filing.
Deducting personal use expenses on a mixed-use property
If you use a rental property personally, you must allocate expenses between rental and personal use based on the number of days each.
Frequently Asked Questions
Rental losses are passive and generally can only offset passive income. However, if you actively participate in rental activities and your AGI is below $150,000, you may deduct up to $25,000 in rental losses against other income.
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