Whether you’re maintaining a single property or operating a rental agency, your Schedule E is an important part of ensuring that you’re reporting the profits and losses of your business properly. While specifics might vary depending on your situation, these tips apply to most landlords and real estate professionals.
As always, if you have a question about specific rules and requirements based upon your situation, consulting an accountant or real estate attorney is recommended.
Schedule E is a tax form used to assess any tax liability, income or losses for a year you might incur from rental properties. Similar to a Schedule C for business owners, the form breaks down common expenses—including advertising, Home Owner’s Association (HOA) fees, repairs and depreciation—as well as income received—such as interest on security deposits or rental income.
The standard Schedule E works for up to three properties. If you’re managing multiple properties, attach additional Schedule E forms to your return.
If you own a rental property you maintain as an individual, you will need to submit a Schedule E.
Other common scenarios use different forms as follows:
Accurately tracking income and expenses throughout the year will make filling out this form simple. As mentioned above, you will need a separate form for every three items you maintain in a given year.
The Schedule E asks for information on the rental property in eight different sections as follows:
Rental losses are only netted against the losses and profits of other rental properties you maintain due to their passive income designation. Even with an active designation, allowed deductions for rental losses will vary based upon your modified adjusted gross income (MAGI).
Losses on rental property are often limited by passive income rules and carried forward to the next tax year where profits are used to offset earlier losses. For more information on the proper methods for claiming rental losses on your Schedule E, the Internal Revenue Service (IRS) offers Publication 925: Passive Activity and At-Risk Rules and Chapter 3 of Publication 527: Residential Rental Property
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