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

IRS Schedule E Form – If you’re dealing with rental properties, royalties, or income from partnerships and trusts, understanding IRS Schedule E is essential for accurate tax reporting. This form helps taxpayers report supplemental income and losses that don’t fit into standard wage or business categories. In this guide, we’ll break down everything you need to know about Schedule E (Form 1040), including its purpose, who must file it, how to complete each part, key updates for the 2025 tax year, and practical tips to avoid common pitfalls.

What Is IRS Schedule E (Form 1040)?

Schedule E, officially titled “Supplemental Income and Loss,” is an attachment to Form 1040 (or 1040-SR, 1040-NR, or 1041 for estates and trusts). It allows you to report income or losses from various sources beyond your regular job or business operations. This includes rental real estate activities, royalty payments, shares from partnerships or S corporations, beneficiary income from estates and trusts, and residual interests in Real Estate Mortgage Investment Conduits (REMICs).

The form is divided into five parts, each focusing on specific types of income or loss. Totals from Schedule E flow to Schedule 1 (Form 1040), line 5, where they contribute to your overall adjusted gross income (AGI). Reporting accurately on Schedule E can help you claim deductions, limit losses under special rules, and potentially qualify for benefits like the qualified business income deduction (QBID) via Form 8995 or 8995-A.

Who Needs to File Schedule E?

You must file Schedule E if you have income or losses from any of the following:

  • Rental real estate, including personal property leased with real estate (but not if it’s your primary business—use Schedule C instead).
  • Royalties from oil, gas, minerals, copyrights, patents, or name, image, and likeness (NIL) rights.
  • Partnerships or S corporations (even if you didn’t receive distributions).
  • Estates or trusts as a beneficiary.
  • Residual interests in REMICs (not regular interests, which go on Form 1040, line 2b).
  • Farm rental income based on tenant-produced crops or livestock (reported in Part I for estates/trusts or on Form 4835 for individuals).

Spouses in a Qualified Joint Venture (QJV) for jointly owned rental real estate can report directly on Schedule E without filing Form 1065, provided they materially participate and file jointly. Single-member LLCs typically file under Schedule E unless they’ve elected corporate status via Form 8832.

If your rental is your personal residence rented for fewer than 15 days in 2025 (the “Augusta Rule”), you don’t report the income at all. However, if you made payments requiring Form 1099 (e.g., $600+ for rents or royalties), you must indicate this on lines A and B of Part I.

Estates and trusts filing Form 1041 use Schedule E but enter their EIN instead of an SSN.

Breaking Down the Parts of Schedule E

Schedule E has five parts, each with specific lines for reporting. Use information from Schedule K-1 forms (from partnerships, S corps, estates, or trusts) to fill in details. If you have more properties or entities than the form allows, attach additional schedules in the same format.

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) with addresses, types (e.g., single-family, commercial, royalties), fair rental days, personal use days, and QJV status if applicable.

  • Income: Report gross rents (line 3) and royalties (line 4).
  • Expenses: Deduct items like advertising (line 5), auto/travel (line 6—use 70 cents per mile for 2025 or actual expenses), insurance (line 9), repairs (line 14), taxes (line 16), depreciation (line 18), and more. Total on line 20.
  • Net Calculation: Subtract expenses from income (line 21). Apply limitations for deductible losses (line 22) via Form 8582.
  • Totals: Aggregate on lines 23–26, which feed into the summary.

For mixed-use properties (e.g., personal use >14 days or >10% of rental days), allocate expenses proportionally.

Part II: Income or Loss From Partnerships and S Corporations

Report your share from Schedule K-1 (Form 1065 or 1120-S). List up to four entities with details like name, EIN, and whether foreign.

  • Columns separate passive income/loss (g, h), nonpassive (i, k), and section 179 deductions (j).
  • Check boxes for basis computations (Form 7203) or at-risk amounts (Form 6198).
  • Totals on lines 29–32.

Part III: Income or Loss From Estates and Trusts

Similar to Part II, use Schedule K-1 (Form 1041) for up to two entities. Separate passive and nonpassive amounts; totals on lines 34–37.

Part IV: Income or Loss From REMICs

For residual holders, use Schedule Q (Form 1066). Report quarterly taxable income/loss and excess inclusions; combine on line 39.

Part V: Summary

  • Line 40: Net farm rental from Form 4835.
  • Line 41: Total from all parts—enter on Schedule 1 (Form 1040), line 5.
  • Lines 42–43: Reconciliations for farming/fishing income and real estate professionals.

Key Rules and Limitations for Schedule E

Several rules can limit your deductions or losses:

  • At-Risk Rules: Losses are limited to your at-risk amount (e.g., cash invested plus qualified nonrecourse financing). Use Form 6198 if applicable.
  • Passive Activity Loss (PAL) Limitations: Rental activities are generally passive unless you’re a real estate professional (>50% of services in real property trades, >750 hours). Deduct passive losses only against passive income; use Form 8582. Special $25,000 allowance for active participants with MAGI ≤$100,000 (phases out to $150,000).
  • Excess Business Loss Limitation: Noncorporate taxpayers limit losses using Form 461; excess becomes a net operating loss (NOL) carryforward.
  • Basis Limitations: For partnerships/S corps, losses can’t exceed your adjusted basis.
  • Net Investment Income Tax (NIIT): 3.8% tax on net investment income if MAGI exceeds $200,000 (single) or $250,000 (joint).

Depreciation uses MACRS; bonus depreciation is 100% for qualified property acquired after January 19, 2025. Section 179 max is $2,500,000, phasing out over $4,000,000.

Updates for the 2025 Tax Year

For 2025, key changes include:

  • Standard mileage rate for auto expenses: 70 cents per mile.
  • Bonus depreciation: Restored to 100% for property acquired after January 19, 2025; phase-down for earlier placements.
  • Section 179 deduction limits: Increased to $2,500,000 max.
  • Business interest limitation: Applies to rentals as trades/businesses; use Form 8990.
  • Form updates: Form 7203 replaces basis worksheets for S corps; new Form 7205 for energy-efficient deductions.

These align with broader tax law changes, including extensions from prior acts. Always check IRS.gov for the latest forms, as updates may occur post-publication.

Update Category 2025 Details
Mileage Rate 70 cents per mile for rental-related travel
Bonus Depreciation 100% for post-Jan. 19, 2025 acquisitions
Section 179 Max $2,500,000 (phase-out at $4,000,000)
PAL Allowance Phase-Out MAGI $100,000–$150,000 (single); half for MFS
NIIT Thresholds $200,000 (single), $250,000 (joint)

Tips for Filing Schedule E Successfully

  • Gather Documents: Collect K-1s, 1099s, expense receipts, and depreciation schedules early.
  • Track Expenses Accurately: Use software or apps to categorize deductions; don’t mix personal and rental use.
  • Elect Aggregations: Real estate pros can aggregate rentals as one activity to meet material participation—attach a statement.
  • Avoid Audits: Report all income, even if no 1099; keep records for three years (or more if losses).
  • Seek Professional Help: If complex (e.g., passive losses, REMICs), consult a tax advisor to maximize deductions without errors.
  • E-File: Use tax software like TurboTax for guided filing and error checks.

Conclusion

Mastering IRS Schedule E ensures you report supplemental income and losses correctly, potentially reducing your tax bill through deductions and limitations. For 2025, stay updated on mileage rates, depreciation rules, and thresholds. Download the latest form and instructions from IRS.gov, and remember: accurate reporting starts with good record-keeping. If you’re unsure, professional guidance can prevent costly mistakes.

This guide is for informational purposes only and not personalized tax advice. Consult the official IRS instructions or a tax professional for your specific situation.