IRS Schedule E is a catchall form for several types of income. You need to attach Schedule E to your Form 1040 (or Form 1040NR) if you earn rental income, receive royalties, or have income from a pass-through entity, such as a partnership, LLC, or S corporation.
Although reporting these types of income on your tax return can be confusing, Schedule E is actually pretty simple. You only need to fill out the sections that pertain to you.
Reporting Rental Income on Schedule E
You use Part I of Schedule E to report income or loss from rental real estate, as well as royalty income. If you rent other types of property, such as a car or equipment, the Internal Revenue Service considers that to be business income, and it goes on Schedule C rather than Schedule E.
Rental income can come from renting out a commercial building, house, apartment, or even a room in your home. Whether you rent out one property or many, you’ll use Schedule E to report rental real estate activities on your federal income tax return. Part I includes three columns — A, B, and C — for listing the address of each property, and the income and expenses of each.
Schedule E also asks for the number of days you owned the property, how many days it was rented or available to rent, and how many days you used the property for personal use.
For each property, you’ll list the total rental income received for the year in box 3. Beneath the space for listing income are several lines for listing common rental expenses, which include:
- Auto and travel
- Cleaning and maintenance
- Legal and other professional fees
- Management fees
- Mortgage interest
- Other interest
- Depreciation expense
If you have any deductible rental expenses that don’t fit into the provided categories, you can enter the total expenses on line 19. You may need to attach an itemized list of those expenses to your return. If you use online tax software like TurboTax or H&R Block, the software will create and attach the list for you.
If you have more than three rental properties, you can complete and attach as many Schedule Es to your return as you need to list each of the properties you rent out. Lines 23a through 26 can be used to combine totals from all of your other Schedule Es.
Keep in mind that the IRS classifies all rental real estate property as a passive activity. If your rental activities resulted in a rental real estate loss, passive activity loss rules state you can only use that loss to offset income from another passive activity.
The IRS provides two exceptions to the passive activity loss limitations, which allow taxpayers to use passive losses to offset earned income (such as salary or wages):
- Taxpayers with a modified adjusted gross income (MAGI) less than $100,000 can deduct up to $25,000 of passive losses against other income.
- Taxpayers who qualify as a real estate professional can deduct passive activity losses.
You can read more about passive activity losses and who qualifies as a real estate professional in IRS Publication 925.
Reporting Royalty Income on the Schedule E Tax Form
Royalty income is payment you receive for the use of your property. The most common types of royalties are for:
- Use of intellectual or artistic property, such as copyrights, trademarks, and patents
- Extraction of oil, gas, or minerals from your property
If you receive at least $10 in royalties for the tax year, the payer should send you a Form 1099-MISC with royalty income reported in box 2.
There are two ways to report royalty income. If the royalty comes from your ordinary business operations, it should be included in your gross revenues on Schedule C. For e
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