FBP - Certified Public Accountants

Guide to Schedule E

| Jul 13, 2021 | Business Insights, Business Resources, Taxes

Guide to Schedule E

The following is a guide to the IRS Schedule E. This is used to report supplemental or passive income* or loss from:

There are limits on losses you can deduct based on your income, though losses can be carried forward for future use. Please consult a professional if you make over $100,000. 

If you have any questions regarding the information provided, or need help preparing your Schedule E, please contact us.

Real Estate Rentals

This is the correct form for real estate rentals including land and/or buildings. This includes rentals such as land rented for farming and homes (or parts of homes) rented out on platforms such as Airbnb if they are strictly rentals (no additional services such as food preparation) and were rented for more than 14 days in the year. Do not use this form for rentals of other personal property such as vehicles.

You will need to calculate the number of days the location was rented at fair market value, the number of personal use days if any (including family that did not pay fair market value rent) and identify if the property is operating as a joint venture.

Personal use days are only calculated if the entire property was used for personal reasons. If, for example, you only rent out your guest room as an AirBnB, you will split the expenses based on the percentage of the home that is rented.

All rental income from the property needs to be reported. 

You cannot deduct your labor as an expense. You can deduct the following expenses associated with your real estate rental:

    • Cleaning and Maintenance
    • Advertising
    • Travel and Auto Expenses
    • Commissions
    • Insurance
    • Legal and/or Professional Services (Including tax preparation)
    • Management Fees
    • Mortgage Interest
    • Repairs (if they are not capital improvements)
    • Supplies
    • Taxes
    • Utilities
    • Depreciation
    • Other Fees such as bank fees, training courses, HOA fees etc.

 

If you own more than three rental properties, each location must be listed on a separate Schedule E, however the totals for all will be included on just one of the forms.

Royalties

Royalties include income from copyrights, patents, oil, gas, and minerals. Each royalty must be listed separately in the columns provided. The payer of the royalties should have issued you a 1099-MISC and that is the amount you need to report. 

You cannot deduct your labor as an expense. You can deduct the following expenses associated with your real estate rental:

    • Advertising
    • Travel and Auto Expenses
    • Commissions
    • Insurance
    • Legal and/or Professional Services (Including tax preparation)
    • Supplies
    • Taxes
    • Banking Fees

 

Other items such as the transfer or a patent or the sale of coal and iron may be eligible for consideration as a royalty. You should consult a professional for assistance with this.

Partnerships and S Corporations

The partnership or S corporation should supply you with a Schedule K-1. This is the information that you will use to file this form.

You can deduct unreimbursed expenses from your Partnership. To qualify the expenses must be related to the trade or business of the Partnership and required under your Partnership agreement.

There are special rules for passive income. If you have expenses that arise from passive income, it is best to consult a financial professional.

In the case of a debt financed acquisition, the loan proceeds and related interest must be allocated with the assets of the partnership or S Corporation. In order to correctly report deductions for interest it must be listed correctly as either business interest, passive interest, or investment interest. Again, it is best to consult a financial professional to ensure this is done accurately.

Estates and Trusts

The fiduciary of the Estate or Trust should supply you with a Schedule K-1, which will have the information needed to complete your Schedule E.

REMIC Profit and Loss

Real Estate Mortgage Investment Conduit (REMIC) profit and loss is included on Schedule E. Use the quarterly Schedule Q you receive from the REMIC to calculate the profit or loss.

 

*Do not include “earned income” on this form, i.e., income you must pay self-employment tax on. 

Team FBPCPA