Schedule E (Form 1040): Supplemental Income and Loss

Schedule E is generally completed by identifying the applicable income-producing activities and reporting the corresponding income, expenses, gains, losses, or other required information. Different parts of the schedule are used for different types of supplemental income.

The completed information is generally used to determine the taxpayer’s overall supplemental income or loss, which may then be transferred to the appropriate federal income tax return. The sections required will depend on the taxpayer’s individual circumstances.

Section 1: Rental Real Estate and Royalties

The rental real estate and royalties section is generally used to report income and expenses associated with rental property and royalty activities. Rental income may include amounts received from tenants, while applicable expenses may include certain property-related costs.

Taxpayers should maintain records of rental income and expenses and separate personal expenses from expenses related to the rental activity. Additional forms or calculations may be required for depreciation, passive activity rules, or other applicable items.

Section 2: Partnerships and S Corporations

This section is generally used to report a taxpayer’s share of income, deductions, gains, losses, or other amounts from partnerships and S corporations. The applicable information is generally provided to the taxpayer through tax statements issued by the entity.

Taxpayers should use the applicable information provided by the partnership or S corporation when completing this section. Additional reporting requirements may apply depending on the taxpayer’s ownership interest and the type of income or loss received.

Section 3: Estates and Trusts

Schedule E may also be used to report certain income or losses received from estates and trusts. Taxpayers generally use information provided by the estate or trust to determine the amounts that need to be reported.

The applicable information may include income, deductions, credits, or other amounts allocated to the taxpayer. Taxpayers should retain the statements and supporting information received from the estate or trust.

Section 4: Supplemental Income and Loss

The applicable amounts from rental activities, royalties, partnerships, S corporations, estates, trusts, and other activities are generally combined to determine the taxpayer’s supplemental income or loss.

The resulting amount is generally carried to the taxpayer’s individual federal income tax return. Certain losses may be subject to limitations or other rules that can affect how much may be used in the current tax period.

Section 5: Passive Activity Considerations

Certain activities reported on Schedule E may be subject to passive activity rules. These rules can affect whether a taxpayer is able to use a loss against other types of income.

The treatment of passive income or losses depends on the taxpayer’s participation in the activity and other applicable circumstances. Taxpayers with potentially restricted losses may need additional forms or calculations.

Section 6: Review and Filing

Before submitting Schedule E, taxpayers should review all reported income, expenses, ownership information, and supporting documents. Rental property records and statements from partnerships, S corporations, estates, or trusts should be compared with the information entered on the schedule.

Schedule E is generally filed with the taxpayer’s individual federal income tax return rather than as a separate standalone return. Depending on the taxpayer’s activities, additional forms or schedules may also need to be included.