What Types of Property Are Reported on Schedule E?

Schedule E, Supplemental Income and Loss, is a tax form used to report income and losses from sources outside of typical employment wages. The Internal Revenue Service (IRS) requires its use for specific activities, distinguishing this income from that on a W-2 for salaries or Schedule C for self-employment. This form consolidates earnings from rental properties, royalties, and ownership interests in certain businesses. As an attachment to Form 1040, the final figures from Schedule E will affect your overall taxable income.

Rental Real Estate and Royalty Properties

Part I of Schedule E is designated for reporting income from two main sources: rental real estate and royalties. Rental real estate encompasses a variety of property types, including single-family homes, apartments, vacation properties, or even a room within your personal residence that you rent to others. If you own only a portion of the property, you are responsible for reporting your proportional share of the income and related expenses.

A distinction exists for properties that have both personal and rental use, such as a vacation home. The tax treatment depends on the number of days you use it personally versus the number of days it is rented at a fair market price. If you use the property for personal purposes for more than 14 days or more than 10% of the total days it is rented out, your ability to deduct losses may be limited.

Royalty income is the other category reported in this section. This type of income is a payment received for the right to use your property, which can be tangible or intangible. Common examples include royalties from oil, gas, or mineral rights extracted from your land, as well as payments for the use of intellectual property like patents or copyrights.

Information Required for Rental and Royalty Properties

Before filling out Schedule E, you must gather specific documentation for each property. For each rental real estate property, you will need to provide its physical address and identify the property type using a code from the form’s instructions. These codes classify the property as a single-family residence, multi-family residence, or commercial. For royalty income, you will use a designated property type code instead of a physical address.

A detailed accounting of all income and expenses is necessary. The primary income figure is the gross rent received, while expenses are the deductible costs for managing and maintaining the property. Common deductions include:

• Advertising costs
• Auto and travel expenses for managing the property
• Cleaning and maintenance
• Insurance premiums
• Professional fees paid to lawyers or accountants
• Mortgage interest reported on Form 1098
• Property taxes
• Repairs
• Utilities

A notable deduction for rental property is depreciation, a non-cash expense that accounts for the cost of the property wearing out over time. You will use Form 4562, Depreciation and Amortization, to calculate the correct annual depreciation amount to claim on Schedule E.

Income from Pass-Through Entities

Schedule E is also used to report income from sources where you do not actively manage day-to-day operations but have an ownership interest. These “pass-through” entities include partnerships, S corporations, estates, and trusts. Individuals with these investments receive a standardized form that provides the necessary figures for their tax return, simplifying the reporting process.

The document for this type of income is the Schedule K-1. The partnership, S corporation, estate, or trust prepares a Schedule K-1 for each partner, shareholder, or beneficiary. This document details your specific share of the entity’s income, losses, deductions, and credits, broken down into categories like ordinary business income and interest.

You transfer the amounts from the Schedule K-1 to the correct parts of Schedule E. Part II is used for income or loss from partnerships and S corporations, while Part III is for income from estates and trusts. You will report the entity’s name, employer identification number (EIN), and the income or loss amounts as they appear on the K-1.

Completing and Summarizing Schedule E

After you have entered all the detailed information, the final step is to consolidate these figures. For each rental property in Part I, you subtract total expenses from total income to determine the net income or loss for that property.

Part V of Schedule E combines the totals from your rental and royalty activities (Part I), partnership and S corporation income (Part II), and estate and trust income (Part III). This summary section calculates your total supplemental income or loss for the year from all sources reported on the form.

The final net income or loss figure calculated on Schedule E is then carried over to Schedule 1 of Form 1040. A net income will increase your total taxable income, while a net loss may, subject to certain limitations like at-risk and passive activity loss rules, reduce it.