Completing Your Schedule E Worksheet for Rental Property

IRS Schedule E, Supplemental Income and Loss, is a tax form attached to a personal Form 1040 return to report income and expenses from sources like rental real estate. This form is used by individual landlords, as corporations and partnerships have different reporting requirements. This guide outlines the information, calculations, and reporting process for completing the form.

Information and Documentation to Gather

Before filling out Schedule E, you must gather basic details for each rental property you own. This includes the complete physical address and the type of property, such as a single-family home, multi-family residence, or condominium.

You must report all rental income generated by the property. This includes monthly rent, advance rent payments, and any portion of a security deposit that was not returned to a tenant. Other reportable income sources are late fees, pet fees, and parking fees.

You must also compile all deductible expenses. To support all income and expense figures, keep detailed records, including receipts, bank statements, and lease agreements. Common deductible expenses include:

• Advertising: Fees for online listings, newspaper ads, or “For Rent” signs.
• Auto and travel: Expenses for traveling to collect rent or make repairs, calculated using either the standard mileage rate (70 cents per mile for 2025) or your actual car expenses.
• Cleaning and maintenance: Costs for routine janitorial services, landscaping, and pest control.
• Insurance: Premiums for policies such as fire, theft, and flood insurance.
• Legal and other professional fees: Costs for an attorney for an eviction or an accountant for tax preparation.
• Management fees: Payments to a property management company.
• Mortgage interest: The amount reported on Form 1098 provided by your lender.
• Repairs: Costs for fixing broken windows, repairing leaks, or replacing a faulty appliance.
• Supplies: Items like light bulbs, air filters, or cleaning products purchased for the property.
• Taxes: Property taxes levied by local governments.
• Utilities: Costs you pay on behalf of the tenant, such as water, gas, or electricity.

Repairs must be distinguished from capital improvements. A repair keeps the property in good operating condition, while an improvement adds value or prolongs its life, like a new roof. Improvements are not expensed in one year but are capitalized and depreciated over time.

Calculating Rental Property Depreciation

Depreciation is a tax deduction allowing a landlord to recover the cost of a rental property over its useful life. It accounts for the gradual wear and tear on the building. You can begin depreciating a property when it is placed in service, meaning it is ready and available for rent. The deduction ends when you have recovered your cost basis or when you take the property out of service.

To calculate depreciation, you must determine the property’s basis. The basis is its purchase price plus certain settlement costs from closing, such as legal fees, recording fees, and surveys. You must subtract the value of the land from the total cost, as land is not depreciable. The remaining amount is the building’s depreciable basis.

Residential rental properties in the U.S. are depreciated using the straight-line method over a recovery period of 27.5 years. This means you deduct an equal amount of depreciation each full year the property is in service. For example, a property with a depreciable basis of $220,000 would have an annual depreciation deduction of $8,000 ($220,000 / 27.5 years).

The depreciation calculation is performed on Form 4562, Depreciation and Amortization. In Part III of this form, you will enter details about the property, including its cost basis, the date it was placed in service, and the 27.5-year recovery period. The form uses specific conventions, like the mid-month convention, which treats property as being placed in service in the middle of the month. The final depreciation amount from Form 4562 is then transferred to Schedule E.

Completing Schedule E Line-by-Line

Part I of Schedule E is where you enter your prepared numbers. Each property you own is listed in a separate column, labeled A, B, or C. If you own more than three properties, you will need to attach additional Schedule E forms.

You begin by entering the physical address for each property on line 1a and the property type on line 1b. On line 3, “Rents received,” you enter the total gross rental income you calculated for the year. The subsequent lines, from 5 through 19, are for your itemized expenses. For example, on line 5, you enter advertising costs, and on line 12, you report mortgage interest from Form 1098.

The depreciation deduction you calculated using Form 4562 is entered on line 18. Other expense categories, such as cleaning, maintenance, insurance, and repairs, have their own designated lines. After entering all individual expenses, you will total them on line 20.

To find your net income or loss, you subtract your total expenses on line 20 from your total income on line 3, and enter this result on line 22. If you have multiple properties, you will combine the income and loss figures from all properties on lines 23 through 25. The final calculation on line 26 shows your total rental real estate income or loss, which is then carried to your main Form 1040.

Understanding Passive Activity Loss Rules

If Schedule E shows a net loss for the year, you must follow the passive activity loss rules. The IRS considers rental real estate a passive activity, which means there are specific rules that govern how you can use those losses, limiting your ability to deduct them in the current year.

The general rule for passive activity losses is that they can only be used to offset income from other passive activities. This means if your only passive activity is a rental property that produced a loss, you cannot use that loss to reduce your taxable income from non-passive sources, such as W-2 wages. This limitation prevents using rental losses to shelter primary income from tax.

An exception called the special allowance for rental real estate activities permits qualifying individuals to deduct up to $25,000 in rental losses against their non-passive income. To qualify, you must “actively participate” in the rental activity, and your modified adjusted gross income (MAGI) must be below a certain threshold. Active participation involves making management decisions like approving tenants, setting rental terms, and approving expenditures.

The $25,000 special allowance is subject to income limitations. The full allowance is available to individuals with a MAGI of $100,000 or less. The allowance is gradually phased out for those with a MAGI between $100,000 and $150,000 and is completely eliminated for those with a MAGI above $150,000. Any passive losses that cannot be deducted are not permanently lost; they are suspended and carried forward to future years to offset future passive income or be deducted when the property is sold.