Schedule E (Form 1040): Rental and Royalty Income, Parts I–V

“Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits (REMICs).”

“Attach to Form 1040, 1040-SR, 1040-NR, or 1041.”

“Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs. You can attach your own schedule(s) to report income or loss from any of these sources. Use the same format as on Schedule E. Enter separately on Schedule E the total income and the total loss for each part. Enclose loss figures in (parentheses).”

“In most cases, a single-member domestic LLC is not treated as a separate entity for federal income tax purposes. If you are the sole member of a domestic LLC, file Schedule E (or Schedule C or F, if applicable). However, you can elect to treat a domestic LLC as a corporation.”

“Caution: DRAFT—NOT FOR FILING”

“Use Part I to report the following. • Income and expenses from rental real estate (including personal property leased with real estate). • Royalty income and expenses. • For an estate or trust only, farm rental income and expenses based on crops or livestock produced by the tenant. Estates and trusts do not use Form 4835 or Schedule F (Form 1040) for this purpose.”

“If you are a member of a partnership or joint venture or a shareholder in an S corporation, use Part II to report your share of the partnership or S corporation income (even if not received) or loss.”

“You should receive a Schedule K-1 from the partnership or S corporation.”

“Caution: The IRS compares amounts reported on your tax return with amounts shown on Schedule(s) K-1.”

“If you are a beneficiary of an estate or trust, use Part III to report your part of the income (even if not received) or loss.”

“If you are the holder of a residual interest in a REMIC, use Part IV to report your total share of the REMIC’s taxable income or loss for each quarter included in your tax year.”

“If you have more than three rental real estate or royalty properties, complete and attach as many Schedules E as you need to list them. But answer lines A and B and fill in lines 23a through 26 on only one Schedule E.”

“If you made any payments in 2025 that would require you to file any Forms 1099, check the “Yes” box. Otherwise, check the “No” box. In general, if you paid at least $600 for services performed by someone who is not your employee (nonemployee compensation), you must file Form 1099-NEC. Generally, you must file Form 1099-MISC if you paid at least $600 in rents, prizes, medical and health care payments, or other miscellaneous amounts that would be income to the person receiving them.”

“If you received rental income from real estate (including personal property leased with real estate), report the income on line 3. Use a separate column (A, B, or C) for each rental property.”

“Report on line 4 royalties from oil, gas, or mineral properties (not including operating interests); copyrights; name, image, and likeness (NIL) rights (such as licensing and merchandising agreements); and patents.”

“If you received $10 or more in royalties during 2025, the payer should send you a Form 1099-MISC or similar statement by January 31, 2026, showing the amount you received. Report this amount on line 4.”

“If you rented out a dwelling unit that you also used for personal purposes during the year, you may not be able to deduct all the expenses for the rental part. “Dwelling unit” (unit) means a house, apartment, condominium, mobile home, boat, or similar property. For each property listed on line 1a, report the number of days in the year each property was rented at fair rental value and the number of days of personal use.”

“A day of personal use is any day, or part of a day, that the unit was used by: • You for personal purposes; • Any other person for personal purposes, if that person owns part of the unit (unless rented to that person under a “shared equity” financing agreement); • Anyone in your family (or in the family of someone else who owns part of the unit), unless the unit is rented at a fair rental price to that person as his or her main home; • Anyone who pays less than a fair rental price for the unit; or • Anyone under an agreement that lets you use some other unit.”

“Do not count as personal use: • Any day you spent working substantially full time repairing and maintaining the unit, even if family members used it for recreational purposes on that day; or • Any days you used the unit as your main home before or after renting it or offering it for rent, if you rented or tried to rent it for at least 12 consecutive months (or for a period of less than 12 consecutive months at the end of which you sold or exchanged it).”

“Whether or not you can deduct expenses for the unit depends on whether or not you used the unit as a home in 2025. You used the unit as a home if your personal use of the unit was more than the greater of: • 14 days, or • 10% of the total days it was rented to others at a fair rental price.”

“If you did not use the unit as a home, you can deduct all your expenses for the rental part, subject to the at-risk rules and the passive activity loss rules, explained earlier.”

“If you did use the unit as a home and rented the unit out for fewer than 15 days in 2025, do not report the rental income and do not deduct any rental expenses. If you itemize deductions on Schedule A, you can deduct allowable interest, taxes, and casualty losses.”

“If you did use the unit as a home and rented the unit out for 15 or more days in 2025, you may not be able to deduct all your rental expenses. See Pub. 527 for more information.”

“Regardless of whether you used the unit as a home, expenses related to days of personal use do not qualify as rental expenses. You must allocate your expenses based on the number of days of personal use to total use of the property. For example, you used your property for personal use for 7 days and rented it for 63 days. In most cases, 10% (7 ÷ 70) of your expenses are not rental expenses and cannot be deducted on Schedule E.”

“You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 1. 14 days, or 2. 10% of the total days it is rented to others at a fair rental price.”

“If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), don’t count that day as a day of rental use in applying (2) above. Instead, count it as a day of personal use in applying both (1) and (2) above.”

“Used as a home but rented less than 15 days. If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function isn’t considered to be rental and it shouldn’t be reported on Schedule E (Form 1040). You aren’t required to report the rental income and rental expenses from this activity. Any expenses related to the home, such as mortgage interest, property taxes, and any qualified casualty loss, will be reported as normally allowed on Schedule A (Form 1040). See the Instructions for Schedule A for more information on deducting these expenses.”

“Used as a home and rented 15 days or more. If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Because you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use, as described earlier in this chapter under Dividing Expenses. The expenses for personal use aren’t deductible as rental expenses.”

“If you meet all of the following conditions, your rental real estate losses are not limited by the passive activity loss rules, and you do not need to complete Form 8582. If you do not meet all of these conditions, see the Instructions for Form 8582 to find out if you must complete and attach Form 8582 to figure any losses allowed.”

“If you have a rental real estate loss from a passive activity (defined earlier), the amount of loss you can deduct may be limited by the passive activity loss rules. You may need to complete Form 8582 to figure the amount of loss, if any, to enter on line 22. See the Instructions for Form 8582 to determine if your loss is limited.”

“Special $25,000 allowance. If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that is disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing the passive activity loss.”

“If you’re married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance can’t be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you can’t use the special allowance to reduce your nonpassive income or tax on nonpassive income.”

“The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. See Phaseout rule, later.”

“You aren’t treated as actively participating in a rental real estate activity unless your interest in the activity (including your spouse’s interest) was at least 10% (by value) of all interests in the activity throughout the year.”

“Phaseout rule. The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that is more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.”

“Example. During 2025, you were unmarried and weren’t a real estate professional. For 2025, you had $120,000 in salary and a $31,000 loss from your rental real estate activities in which you actively participated. Your modified adjusted gross income is $120,000. When you file your 2025 return, you can deduct only $15,000 of your passive activity loss. You must carry over the remaining $16,000 passive activity loss to 2026.”

“Exceptions to the phaseout rules. A higher phaseout range applies to rehabilitation investment credits from rental real estate activities. For those credits, the phaseout of the $25,000 special allowance starts when your modified adjusted gross income exceeds $200,000 ($100,000 if you’re a married individual filing a separate return and living apart at all times during the year). There is no phaseout of the $25,000 special allowance for low-income housing credits.”

“The maximum special allowance is: • $25,000 for single individuals and married individuals filing a joint return for the tax year. • $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year. • $25,000 for a qualifying estate, reduced by the special allowance for which the surviving spouse qualified.”

“Modified adjusted gross income limitation. If your modified adjusted gross income (see the instructions for line 6, later) is $100,000 or less ($50,000 or less if married filing separately), your loss is deductible up to the amount of the maximum special allowance referred to in the preceding paragraph. If your modified adjusted gross income is more than $100,000 ($50,000 if married filing separately) but less than $150,000 ($75,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your modified adjusted gross income. Generally, if your modified adjusted gross income is $150,000 or more ($75,000 or more if married filing separately), there is no special allowance.”

“If you were a real estate professional for 2025, complete Schedule E, line 43.”

“Generally, rental real estate activity is reported on Schedule E even if it is also a trade or business activity; however, if you provided significant services to the renter, such as maid service, report the rental activity on Schedule C, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.”

“Do not use Schedule E to report income and expenses from rentals of real estate you held for sale to customers in the ordinary course of your business as a real estate dealer. Instead, use Schedule C for those rentals.”

“Do not use Schedule E to report income and expenses from the rental of personal property, such as equipment or vehicles. Instead, use Schedule C if you are in the business of renting personal property. You are in the business of renting personal property if the primary purpose for renting the property is income or profit and you are involved in the rental activity with continuity and regularity.”

“Note: If you are in the business of renting personal property, use Schedule C. See instructions.”

“If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C, not on Schedule E.”

“Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Providing substantial services. If you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C. Use Form 1065, U.S. Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Substantial services don’t include the furnishing of heat and light, cleaning of public areas, trash collection, etc.”