Published on: March 18, 2020 Last modified: April 28, 2020

The Schedule E IRS Form for Supplemental Income and Loss

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    Everyone loves the idea of passive income.

    This is money you generate in addition to your earned income, which is associated with your business activities. 

    While it can be beneficial, you might start cursing it come tax time. That’s because, within your standard Form 1040, you have to complete a separate sheet, known as Schedule E: Supplemental Income and Loss

    As if your eyes weren’t totally crossed by now, you’ll have more than 20 lines to consider and fill out n this Schedule E IRS form. 

    Sound complicated? Let us break it down for you. Read on to take a closer look at Schedule E so you’ll know exactly what to expect.

    Tax Education Schedule E IRS Form

    What is Schedule E?

    Schedule E is a tax form issued by the IRS. You’ll complete it as part of your personal tax return. 

    This is where you’ll report all of the income or losses you experienced as a result of the following:

    • Rental properties
    • Royalties
    • Partnerships
    • S corporations
    • Trusts
    • Estates
    • Residential interest in REMICs (Real Estate Mortgage Investment Conduits)

    Next, let’s take a look at each of these in greater detail.

    Rental Income 

    Are you a landlord? Do you rent your home out on an online marketplace like Airbnb? 

    If you have any kind of rental income at all, you must fill out Schedule E. 

    Under Schedule E, Part I, you’ll designate the type of property you own and rent. Your choices include:

    • Single-family residence
    • Multi-family residence
    • Vacation/Short-term rental
    • Commercial
    • Land
    • Royalties
    • Self-rental
    • Other

    The form allows you to detail up to three rental properties. If yours exceed this number, you’ll need additional Schedule Es. However, you’ll only need to complete lines 23a through 26 (totals) once. 

    Once you select the appropriate type, you’ll indicate how many days you rented the property for that year (“fair rental days”). You’ll also note how many days the property was reserved for your own personal use (“personal use days”).

    Under the “Income” section, you’ll enter the income that your rental property generated that year across from “Rents Received”. If you own a multi-family property, you’ll add together all the rental income you made from the building as a whole.

    Calculating Your Rental Expenses on the Schedule E IRS Form

    While the IRS might consider rental income to be passive, landlords know that it’s anything but. There are myriad activities and costs that go into maintaining and managing a rental property.

    Thankfully, the IRS gives you the chance to list those out on Schedule E. These range from advertising to utilities, and also include the following expenses, among others:

    • Auto and travel
    • Cleaning and maintenance
    • Insurance
    • Mortgage interest paid to banks
    • Repairs 
    • Supplies
    • Taxes

    This is why it’s so important to keep up with every dollar you spend on your rental. You can track these expenses in a simple spreadsheet, or you might find that specialized accounting software is more organized and feature-rich.

    You don’t want to be sorting through mountains of receipts if the IRS decides to investigate your form. Presenting incomplete information could result in penalties and fees.

    Royalties

    Not related to rental income, you’ll find a place to list royalties on Line 4 of Schedule E.

    These are royalties you’ve received from any oil, gas, or mineral properties that you own. You’ll also use this space to list loyalties from copyrights or patents. Note that if your royalties are greater than $10, you’ll also need to include IRS Form 1099-MISC.

    Partnerships and S Corporations

    The IRS requires that anyone who is a member of a partnership to fill out Schedule E, Part II. This also applies to anyone who is a joint venture or a shareholder in an S corporation.

    The partnership or S corporation will send you a Schedule K-1 to aid with this step. Remember to keep this document for your records rather than affixing it to your return.

    In this section, you’ll report your share of the income earned by the partnership or S corporation. If there was no income received or a loss experienced, you’ll report that here, too.

    Trusts, Estates, and REMICs

    Are you the beneficiary of an estate or trust? If so, you’ll use Schedule E, Part III to report your part of the income received or loss incurred.

    Prior to filing your taxes, you should receive a Schedule K-1 (IRS Form 1041) from the fiduciary. The instructions on this form will tell you how to use it to fill out Schedule E.

    Now, let’s move to Part IV.

    This section applies to you if you hold any residual interest in a REMIC. Here, you’ll list your overall share of the REMIC’s taxable income (or loss) for that year, covering every quarter of the tax year. 

    Prior to tax time, you’ll receive a copy of Schedule Q (IRS Form 1066). This will help you fill out the following sections under Part IV:

    • Excess inclusion 
    • Taxable income (net loss)

    Understanding Loss Limits

    The IRS doesn’t mind you raking in supplemental income. However, they don’t make it too easy to report it. Nor do they sweep any losses under the rug. 

    Overall, your passive loss limitations hinge on your adjusted gross income (AGI). If you make more than $150,000 per year, you’ll report that loss on IRS Form 8582 and carry it forward

    Complete Your Schedule E With Us

    Tax season is right on our heels! This can only mean one thing: It’s time to start filling our your personal tax form!

    Looking at Schedule E and still confused? Let us help.

    We’re qualified, experienced and reputable tax attornies with a great reputation that precedes us. From audit defense to emergency tax service, we do it all with skill.

    Contact us today to learn more about the services we offer and how we can help.

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