If you earn money from a rental property or other supplemental income source, chances are the IRS wants to hear about it — specifically on Schedule E. This form plays a big role in how rental income and taxes show up on your tax return. Filing it correctly can help you report income accurately and claim some valuable tax deductions you don’t want to miss out on.
The good news? You don’t have to figure out IRS Schedule E on your own. Below, we’ll walk you through the form, help you avoid common mistakes, and keep your income tax return on track (even during the chaos of tax season and all the tax forms and schedules that come with it). Let’s break everything down.
What is a Schedule E?
Schedule E (Form 1040), Supplemental Income and Loss, is where you report income or losses from rental real estate and royalties (Part I), as well as certain income or losses that pass through to you on Schedule K-1 (Parts II and III).
Unlike wages or other traditional earned income, this type of income is generally considered passive, meaning it’s taxed differently and doesn’t usually trigger payroll or self-employment taxes. That’s why it gets its own schedule.
The Schedule E IRS form reports the following types of supplemental income:
- Rental income from rental real estate
- Royalty income
- Income or losses from partnerships
- Income passed through from S corporations (S corps)
- Income from certain trusts and estates
You file Form 1040 Schedule E with your individual Form 1040.
Common Schedule E scenarios
You may need IRS Schedule E if:
- You rent out a long-term property.
- You own a vacation home with limited personal use.
- You collect royalty income.
- You’re a landlord who pays management fees.
- You’re a real estate professional with passive income.
Why is Schedule E important?
Schedule E directly affects your taxable income, tax rates, and potentially even your tax bracket. Reporting income incorrectly (or missing deductions) can result in paying more federal income tax than necessary, which is something nobody wants.
This schedule matters because:
- It determines how your passive income is taxed.
- It tracks rental property expenses (tax-deductible items on your return).
- It reports income passed through via Schedule K-1.
- It helps calculate losses that passive activity loss rules may limit (more on this later).
What counts as Schedule E rental income?
In general, rental income includes the cash (or fair market value of property or services) you receive for the use of your property.
Here are some examples of rental income that may be listed on this form:
- Rent payments from tenants
- Advance rent
- Payments for lease cancellations
- Tenant-paid expenses (like utilities you normally cover)
- Income from short-term rentals like Airbnb® or VRBO®
Who needs to file Schedule E?
You typically need to file Schedule E if you earn income from:
- A rental property or multiple rental units
- Rental activities involving residential or commercial property
- Partnerships that issue you a Schedule K-1
- An S corp passing income to you
- Trusts, estates, or if you’re a beneficiary
- Real estate mortgage investment conduits (REMICs)
Common documents that support Schedule E income
- Lease agreements and rent ledgers
- Bank statements or end-of-year property management statements
- Form 1098 (mortgage interest)
- Form 1099-MISC or Form 1099-K you received related to rental payments or services
Schedule C vs. Schedule E vs. Form 8825
Schedule E often gets confused with Schedule C (Profit or Loss from Business) or Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation). All of these tax forms may deal with rental income, just in different situations. The IRS uses different forms to distinguish between passive rental activity at the individual and entity levels, as well as active, self-employed work, which all follow different tax rules.
Here’s a quick breakdown:
| Scenario | Real-life example | Form to use | Reason | What happens? |
|---|---|---|---|---|
| Passive rental activity with limited services | You rent a single-family home year-round and hire a property manager to handle tenants | Schedule E | The IRS treats most long-term rentals as passive income, not active business income | Income and expenses are reported directly on your personal return using Schedule E, Part I |
| Active rental operation with substantial services | You run a short-term vacation rental, provide daily cleaning, and offer guest services | Schedule C | Providing ongoing services can make the activity self-employed work | Income is treated as business income and may be subject to self-employment tax |
| Rental owned by a partnership or S corp | You and a partner own a duplex through an S corp and split income via Schedule K-1 | Form 8825 | Rental income is reported at the entity level, then passed to owners | The partnership or S corp files Form 8825 and issues Schedule K-1s to owners |
| Combination of personal and entity-owned rentals | You personally own one rental property and are also a partner in an LLC that owns a duplex | Form 8825 and Schedule E | Different owners report at different levels | The LLC reports rental activity on Form 8825, you receive a Schedule K-1, and you report both the K-1 income (Schedule E, Part II) and your personal rental (Schedule E, Part I) |
Schedule E example
Schedule E looks like this:
How Schedule E is organized
Schedule E is broken into five main parts, but most taxpayers only use one or two:
- Part I: Rental real estate and royalties. Lists all properties and reports rents received for each, then subtracts deductible expenses like repairs, insurance, and depreciation.
- Part II: Partnerships and S corporations. Reports pass-through income or loss from Schedule K-1 issued by partnerships or S corps.
- Part III: Estates and trusts. Reports income or loss if you’re a beneficiary of an estate or trust, using information from Schedule K-1.
- Part IV: REMICs. Reports income from REMICs, often provided on Schedule Q.
- Part V: Summary. Totals income and losses from all Schedule E and carries the net amount to your Form 1040.
Schedule E instructions
Before filling out Schedule E, make sure you have the following information on hand:
- Property address, type (single family, multi-family, vacation/short-term, commercial, etc.), and the days rented vs. personal use
- Total rents received and any other rental income
- A category-by-category list of expenses and receipts for the year.
- Form 1098 mortgage interest statement(s) and property tax bills, if applicable
- Your depreciation records: purchase price allocation between land and building, improvement costs, and prior-year depreciation taken
- Schedule K-1, if applicable
What expenses can you deduct on Schedule E?
Schedule E has built-in categories for common landlord expenses, which can make it easier to stay organized (and defend your numbers if the IRS asks questions). Expenses can include, but aren’t limited to:
| Schedule E line item (Part I) | Examples |
|---|---|
| Advertising | Listing fees, “for rent” signs, tenant screening ads |
| Cleaning and maintenance | Turnover cleaning, lawn care, snow removal, pest control |
| Insurance | Landlord policy, umbrella policy allocated to rental |
| Legal and professional fees | Attorney fees, accounting, tax prep allocable to the rental (including TaxAct® filing fees) |
| Management fees | Property management percentage fees, leasing fees |
| Mortgage interest paid to banks | Form 1098 interest related to the rental (not your personal home) |
| Repairs | Fixing leaks, patching drywall, replacing broken hardware (does not include major improvements) |
| Taxes | Property taxes assessed on the rental property |
| Utilities | Water, electric, gas you pay as the landlord |
| Depreciation expense or depletion | Annual depreciation for the building and qualifying assets (land is not depreciable) |
| Other expenses | Bank fees, HOA dues, or other ordinary and necessary rental costs |
Why your rental loss might be limited (Form 8582 and passive activity rules)
Most rental real estate activities are treated as passive activities under IRS rules. That matters because passive losses are often limited and may need to be calculated on Form 8582.
Loss limits often apply if:
- You earn above certain income thresholds
- You don’t qualify as a real estate professional
- The rental counts as passive income
However, there is an exception. If you or your spouse actively participates in managing the rental property (even in simple ways, such as approving tenants or deciding on repairs), you may be able to deduct up to $25,000 of rental losses against your other income, like wages. This special allowance is subject to income phaseouts.
If your loss is limited, any unused losses may carry forward to future years and potentially become deductible later (for example, when your rental starts generating income or you sell the property and trigger the release of suspended passive losses).
Learning about passive activity rules for the first time? Our article on passive activity income can help you understand how the limits work in real life.
Special situations
Some types of rentals come with extra tax complications. These situations often require additional tracking, calculations, or allocations when completing Schedule E. Let’s review some more common ones.
Vacation homes and mixed-use properties
If you rent out a vacation home and also use it personally, the IRS treats it as a mixed-use property. Schedule E asks for:
- The number of days the property was rented at fair rental value
- The number of days of personal use
When personal use exceeds IRS limits (typically more than 14 days per tax year or more than 10% of the days it was rented at fair market value, whichever is greater), you must allocate expenses between rental and personal use. Only the rental portion of expenses — like mortgage interest, property taxes, insurance, and utilities — is deductible on Schedule E.
If you need help allocating expenses in TaxAct, see our help article on allocation of rental and personal expenses. We also have guidance on how to calculate partial use rental property.
Short-term rentals and Airbnb
Income from short-term rentals, like Airbnb properties, is often still reported on Schedule E, provided that your activity is considered a rental under IRS rules. If you provide substantial services (daily cleaning, meals, concierge-style services), that income may cross into business income and should be reported on Schedule C instead.
This distinction matters because it determines how your taxable income is calculated.
Multiple properties or out-of-state rentals
Owning more than one rental property, especially in different states, can increase reporting complexity. Each property gets its own column on Schedule E, and out-of-state rentals may also trigger separate state filing requirements.
Royalties and residual interests
Royalty income and residual interests are also reported on Schedule E. These income types are common in oil, gas, mineral rights, and intellectual property arrangements and are generally treated as passive income for most taxpayers.
REMIC income and Schedule E
REMICs (Real Estate Mortgage Investment Conduits) are pooled mortgage investments, rather than direct ownership of real estate. If this applies to you, you’ll typically receive Schedule Q, and the income flows to Schedule E (via Part IV).
Most landlords won’t encounter REMICs. However, if you do, the income is typically treated as passive income and may be subject to additional IRS reporting requirements.
If you are dealing with any of the above scenarios and have questions, personalized help from tax professionals may be a good idea. Consider adding TaxAct Xpert Assist® to your return to get access to expert help from credentialed tax experts when filing your return.*
Schedule E FAQs
How to file Schedule E with TaxAct
You may receive Form 1099-MISC or Form 1099-K reporting income tied to your rental. You’ll enter this info during the Schedule E interview process in TaxAct. Here’s how it works:
- From within your TaxAct return, click Income. On smaller devices, open the menu in the top-left corner.
- Expand Business & Self-Employed.
- Click Add beside Rental Properties & Royalties (Schedule E) as shown below.
- Follow the guided interview to enter income and expenses.
The bottom line
If you earn income from a rental property, Schedule E is typically how you report it, along with deductions that can lower your taxable income. It may seem confusing at first, but understanding how taxes on rental income work will help you file confidently and avoid surprises this tax season.
Whether you’re renting out your first unit or juggling multiple properties, TaxAct can help you file Schedule E and maximize deductions for your rental properties. Tax filing is our full-time job, not yours — let our software do the heavy lifting so you can get back to running your business.
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