How to Fill Out Schedule E for Rental Income and Loss

To fill out Schedule E for rental income, you enter each property’s address and IRS type code at the top of Part I, report the year’s gross rent on line 3, list your deductible expenses on lines 5 through 19, and subtract expenses from income to get the net profit or loss on line 21 for each property. Lines 23 through 26 combine your properties, and the bottom-line figure flows to Schedule 1 (Form 1040), line 5, where it feeds into your adjusted gross income. Most individual landlords never leave Part I. The parts of the form that matter most for your tax bill are the repair-versus-improvement call on line 14, the depreciation entry on line 18, and whether the passive activity rules let you use a loss in the current year.

Pull Your Records Before You Open the Form

Filling in Schedule E goes quickly if you have the paperwork organized first. For each rental property, you need the year’s rent receipts, your Form 1098 mortgage interest statement, the property tax bill, insurance premium statements, invoices for repairs and maintenance, management fee records, utility bills you paid, and a mileage log if you drove to the property for rental purposes. If you received royalty payments from oil, gas, mineral, or intellectual property interests, pull the Form 1099-MISC that reported them. If you hold a partnership or S corporation interest, get the Schedule K-1 the entity issued; the same goes for a K-1 from an estate or trust if you’re a beneficiary.

Part I: Property Address and Type Code

Part I is the rental and royalty section, and it’s where the vast majority of individual filers do all their work. Start at line 1a with the street address, city, state, and ZIP code of each property. The form has columns A, B, and C for three properties. If you own more than three, attach additional page 1s of Schedule E, but combine everything on a single Schedule E when you fill out the totals on lines 23a through 26.¹

Line 1b asks for a type code. The eight choices are: 1 for single-family residence, 2 for multi-family residence, 3 for vacation or short-term rental, 4 for commercial, 5 for land, 6 for royalties, 7 for self-rental, and 8 for other.² The code isn’t cosmetic; it drives how the IRS applies loss limitations, particularly to vacation rentals and self-rentals.

Line 2 asks whether you used the property for personal purposes. A property becomes a personal residence in the eyes of the IRS if you used it for more than 14 days or more than 10% of the days it was rented at fair market value, whichever is greater.³ Crossing that line caps the expenses you can deduct. Vacation home owners should look at this question closely before answering.

Reporting Rental and Royalty Income on Lines 3 and 4

Line 3 is the gross rent you received during the year, per property. Enter the full amount you collected, not what was left after the mortgage or management company took their cut. Line 4 captures royalty income.²

Deposits are the classic mistake. A refundable security deposit isn’t income when you receive it; it becomes income only in the year you keep some or all of it. If what your lease calls a security deposit is really the last month’s rent, it’s advance rent and it counts as income in the year you receive it, whatever period it covers. A payment from a tenant to cancel a lease early is also rental income in the year received.⁴⁵

Expenses on Lines 5 Through 19

Each expense line has its own category, and you fill in a column for each property. The lines you’ll use most often:

Line 5, advertising to find tenants
Line 6, auto and travel
Line 7, cleaning and maintenance
Line 9, insurance premiums
Line 10, legal and professional fees
Line 12, mortgage interest paid to banks and lenders
Line 13, other interest
Line 14, repairs
Line 16, property taxes (not income taxes)
Line 17, utilities you paid for the property
Line 18, depreciation or depletion
Line 19, other expenses

The line 14 versus line 18 decision is the one auditors look at hardest. A repair keeps the property in its current working condition: fixing a leaky faucet, patching drywall, replacing a broken window. Repairs are deducted in full the year you pay for them. An improvement adds value or extends the property’s useful life: a new roof, a remodeled kitchen, an added bathroom. Improvements have to be capitalized and depreciated over years, not deducted all at once.² Miscategorizing improvements as repairs is one of the most common triggers for an accuracy-related penalty.

Vehicle and Travel

Miles driven to your rental for maintenance, inspections, or tenant issues are deductible on line 6. For 2026, the IRS standard mileage rate is 72.5 cents per mile for business use.⁶ You can use the flat rate or track actual vehicle costs, but if you want to use the standard rate on a vehicle you own, you have to elect it the first year the car is available for business. Leased vehicles are locked into the method you pick for the full lease term. Out-of-town trips to work on a rental are deductible too, including airfare, lodging, and 50% of meals, but only if the trip is primarily for rental activity.

Depreciation on Line 18

Depreciation is the largest non-cash deduction most landlords claim. It spreads the cost of the building (not the land) over 27.5 years for residential rental property and 39 years for commercial.⁷ You allocate the purchase price between land and building, then depreciate only the building portion.

If you placed the property in service during the current tax year, complete Form 4562 and attach it.⁸ For properties from prior years, just enter the annual depreciation figure on line 18. Do not skip depreciation to “save it.” When you sell, the IRS recaptures depreciation whether or not you actually claimed it, so skipping the deduction means paying tax on a benefit you never received.

Line 21: Net Profit or Loss

Add lines 5 through 19 for each property and put the total on line 20. Subtract line 20 from line 3 (plus line 4 for royalties) to get the net profit or loss on line 21. Lines 23 through 26 aggregate all properties and apply the loss limitation rules. If your only Schedule E activity is Part I, the total on line 26 transfers to Schedule 1 (Form 1040), line 5.⁹

Profits are simple. Losses depend on the passive activity rules.

Can You Actually Use a Rental Loss This Year?

Rental real estate is a passive activity by default, which means rental losses can only offset passive income. A rental loss with no other passive income to absorb it does not automatically reduce your wages; the excess carries forward.

There is a widely used exception. If you actively participated in the rental — making decisions about tenants, approving repairs, setting rent — you can deduct up to $25,000 of rental losses against non-passive income.¹⁰ Active participation is a lower standard than material participation; owning at least 10% and being involved in management decisions generally qualifies. The $25,000 allowance phases out at 50 cents for every dollar of modified adjusted gross income above $100,000, and it disappears completely at $150,000 in MAGI. Any disallowed loss carries forward to offset future passive income or can be freed up when you sell the property.

A separate route out of the passive rules is real estate professional status. You have to meet both of these tests every year: more than 750 hours in real property trades or businesses where you materially participate, and more than half of all your personal services across every trade or business in real property activities. Qualifying real property work includes development, construction, acquisition, rental, management, leasing, and brokerage.¹⁰ Meeting both tests makes your rental activity non-passive, letting losses offset any income without the $25,000 cap. The more-than-half test is what stops most people; a full-time W-2 job almost guarantees you fail it. The IRS challenges this status often, and contemporaneous time logs are what carry the day.

If You Have K-1 Income

Part II reports partnership and S corporation income and losses. Enter each entity’s name and Employer Identification Number, mark passive or non-passive, and transfer the figures from your Schedule K-1 (Form 1065) for partnerships or Schedule K-1 (Form 1120-S) for S corporations.² Passive losses from these entities face the same limits described above.

Part III handles income from estates and trusts, drawn from Schedule K-1 (Form 1041).¹¹ Part IV covers residual interests in Real Estate Mortgage Investment Conduits; almost no individual filer uses it. Part V on the last page combines Parts I through IV into a single figure on line 41 that transfers to Schedule 1, line 5.⁹ If your only activity is Part I, you can go straight from line 26 to Schedule 1 without touching Part V.

Records and Penalty Exposure

Attach Schedule E behind your Form 1040 or 1040-SR. E-filing catches math and cross-form errors that paper filers routinely miss.

Keep every receipt, bank statement, mileage log, and K-1 supporting the numbers on the form. The IRS has three years from your filing date to audit a return under normal rules, and six years if you omit more than 25% of your gross income.¹² Seven years of records is a safe target for a landlord juggling rents, royalties, and K-1s. If the IRS finds you underreported due to negligence, the accuracy-related penalty is 20% of the underpayment.¹³ The recurring triggers are treating improvements as repairs, leaving advance rent off the year you received it, and claiming losses that exceed passive activity limits.

1
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
2
Internal Revenue Service. Schedule E (Form 1040) – Supplemental Income and Loss
3
Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property
4
Internal Revenue Service. Rental Income and Expenses – Real Estate Tax Tips
5
Internal Revenue Service. Publication 527 – Residential Rental Property
6
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents
7
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
8
Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization
9
Internal Revenue Service. Schedule E (Form 1040) 2026
10
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
11
Internal Revenue Service. Schedule K-1 (Form 1041) – Beneficiary’s Share of Income, Deductions, Credits
12
Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection
13
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments