IRS Form 1040 (Schedule E) – Supplemental Income and Loss

If you’re dealing with rental properties, royalties, or income from partnerships, understanding IRS Form 1040 Schedule E is essential for accurate tax reporting. This form, officially titled “Supplemental Income and Loss,” helps taxpayers report income or losses from sources outside of regular wages or business operations. Whether you’re a landlord, a partner in a business, or a beneficiary of a trust, filing Schedule E correctly can help you avoid penalties and maximize deductions. In this guide, we’ll break down everything you need to know about Schedule E for the 2025 tax year, including how to fill it out and key updates.

What Is IRS Schedule E?

IRS Schedule E (Form 1040) is used to report supplemental income and loss from various passive activities. This includes rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in Real Estate Mortgage Investment Conduits (REMICs). Unlike earned income from a job, this type of income is often considered passive, meaning it’s subject to specific rules like passive activity loss limitations.

The form attaches to your Form 1040, 1040-SR, 1040-NR, or 1041. Net income or loss from Schedule E flows to Schedule 1 (Form 1040), line 5, affecting your overall taxable income. Common examples of income reported here include:

  • Rental payments from tenants.
  • Royalties from oil, gas, minerals, copyrights, patents, or name, image, and likeness (NIL) rights.
  • Your share of profits or losses from partnerships or S corporations.
  • Distributions from estates or trusts.

If you’re a real estate investor, Schedule E is particularly important for reporting rental income and expenses, which can include deductions for repairs, depreciation, and more.

Who Needs to File Schedule E?

You must file Schedule E if you have income or losses from:

  • Rental real estate or royalties (even if it’s a loss).
  • Partnerships or S corporations (using information from Schedule K-1).
  • Estates or trusts (as a beneficiary).
  • REMICs.

Single-member LLCs treated as disregarded entities typically report on Schedule E, unless they’ve elected corporate status. Spouses with jointly owned rental real estate can elect Qualified Joint Venture (QJV) status to report separately without filing Form 1065.

Note: If your rental activity qualifies as a trade or business (e.g., short-term rentals like Airbnb), you might use Schedule C instead. Farm rentals go on Form 4835.

Understanding the Structure of Schedule E

Schedule E is divided into five parts. Here’s a breakdown based on the 2025 form layout:

Part I: Income or Loss From Rental Real Estate and Royalties

This section covers rents and royalties. List up to three properties (A, B, C); use additional schedules for more.

  • Lines 1-2: Property addresses, types (e.g., single-family, commercial, royalties), fair rental days, personal use days, and QJV checkbox.
  • Lines 3-4: Income from rents and royalties.
  • Lines 5-19: Expenses like advertising, auto/travel, cleaning, insurance, repairs, taxes, utilities, depreciation, and other.
  • Line 20: Total expenses.
  • Line 21: Net income/loss.
  • Line 22: Deductible loss after passive limitations (from Form 8582).
  • Lines 23-26: Aggregated totals for all properties.

Part II: Income or Loss From Partnerships and S Corporations

Report your share from Schedule K-1.

  • Line 27: Check for prior unallowed losses.
  • Line 28: List entities with passive/nonpassive income/losses, Section 179 deductions.
  • Lines 29-32: Totals and net income/loss.

Part III: Income or Loss From Estates and Trusts

Similar to Part II, using K-1 info.

  • Line 33: List estates/trusts.
  • Lines 34-37: Totals and net.

Part IV: Income or Loss From REMICs

For residual holders, using Schedule Q (Form 1066).

  • Line 38: REMIC details.
  • Line 39: Net.

Part V: Summary

  • Line 40: Farm rental from Form 4835.
  • Line 41: Total income/loss from all parts.
  • Lines 42-43: Reconciliations for farming/fishing and real estate professionals.

For a visual reference, here’s an example of Schedule E:

How to Fill Out Schedule E: Step-by-Step Guide?

  1. Gather Documents: Collect 1099 forms, K-1s, expense receipts, and depreciation schedules.
  2. Part I Setup: Enter property details. Report gross rents/royalties on lines 3-4. Deduct ordinary expenses (e.g., mortgage interest on line 12, depreciation on line 18).
  3. Calculate Net: Subtract expenses; apply limitations (e.g., at-risk rules via Form 6198).
  4. Parts II-IV: Transfer K-1 or Q data; check for basis/at-risk issues.
  5. Summary: Total everything on line 41.
  6. Attach if Needed: Forms like 4562 (depreciation), 8582 (passive losses), 461 (excess losses).

For mixed-use properties, allocate expenses based on rental vs. personal days. Losses may be limited if you’re not a real estate professional (over 750 hours and >50% of services in real property).

What’s New for the 2025 Tax Year?

Key updates include:

  • Standard mileage rate: 70 cents per mile for rental activities.
  • Bonus depreciation: 100% for qualified property acquired after January 19, 2025.
  • Section 179 limits: Up to $2,500,000 deduction, phase-out at $4,000,000.
  • Business interest limitation: Applies to rentals treated as trades/businesses.
  • Excess business losses: Disallowed amounts become NOL carryforwards.
  • New Form 7203: For S corp basis calculations.

Common Mistakes and Tips for Filing Schedule E

  • Mistake: Not reporting personal use days, leading to improper deductions.
  • Tip: Keep detailed records; use software for calculations.
  • Mistake: Ignoring passive loss rules—most rentals are passive unless you’re a professional.
  • Tip: If loss ≤ $25,000 and MAGI ≤ $100,000, you may deduct without Form 8582 (active participation required).
  • Mistake: Forgetting 1099 filings for payments over $600.
  • Tip: Report cash over $10,000 via Form 8300.
  • General Advice: Consult a tax professional for complex situations like foreign entities or reportable transactions.
  • Instructions: 2025 Instructions for Schedule E
  • Form PDF: Download here.
  • Publications: 527 (Residential Rental Property), 544 (Sales of Assets).
  • Other Forms: 8582, 6198, 8990, 8995-A (for QBI deduction).

Conclusion

Filing IRS Form 1040 Schedule E ensures you properly report supplemental income and loss, potentially reducing your tax bill through deductions. Stay updated with IRS changes, and always use accurate records to avoid audits. For personalized advice, consult a tax advisor. By understanding Schedule E, you can navigate rental income tax and other passive earnings with confidence in 2025.