Schedule E - Supplemental Income and Loss

Schedule E (Form 1040) is used to report supplemental income and loss from various sources, including rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs. The form is divided into parts to organize income and losses by source, with specific instructions for each section. Losses are reported in parentheses, and total income or loss from each part is combined in Part V, line 41, which is then transferred to Schedule 1 (Form 1040), line 5.

Part I: Income or Loss From Rental Real Estate and Royalties

• Report income and expenses from rental real estate (including personal property leased with real estate) and royalties.
• For each rental property, complete lines 1a, 1b, and 2. For royalty property, enter code 6 on line 1b and leave lines 1a and 2 blank.
• If you own a partial interest in a rental property, report only your share of income and expenses.
• Do not use Schedule E for rental of personal property (e.g., equipment or vehicles) unless it is part of a business; use Schedule C instead.
• For losses from rental activities where you are not at risk, use Form 6198 to determine deductible loss and enter it on line 21.
• Extraterritorial income exclusion for qualifying foreign trade income is reported using Form 8873.

Part II: Income or Loss From Partnerships and S Corporations

• Report income or loss from partnerships and S corporations. Use Form K-1 to determine amounts to report.
• Line 27: If you are reporting a loss not allowed in a prior year due to at-risk or basis limitations, passive activity loss rules, or unreimbursed partnership expenses, see instructions before completing this section.
• Line 28: Report current-year ordinary income or loss (after applying special loss rules) in the applicable column. Related items (e.g., depletion) should be reported on separate lines with descriptions in column (a).
• Line 32: Total partnership and S corporation income or loss (combine lines 30 and 31).
• Special Rules That Limit Losses:
  • At-risk rules: Losses may be limited if you have amounts for which you are not at risk. Use Form 6198 to determine deductible loss.
  • Passive activity loss rules: Losses from passive activities may be disallowed unless you actively participate.
  • Excess business loss rules: If you report a loss from a partnership or S corporation engaged in a trade or business, use Form 461 to figure excess business loss. This loss is not reflected on Schedule E but is added to income on Form 1040 and carried forward as a net operating loss.

Part III: Income or Loss From Estates and Trusts

• Report income or loss from estates and trusts. Estates and trusts do not use Form 4835 or Schedule F for farm rental income based on crops or livestock produced by the tenant.
• Line 37: Total estate and trust income or loss (combine lines 35 and 36).

Part V: Summary

• Line 41: Total income or loss. Combine lines 26 (rental), 32 (partnerships/S corps), 37 (estates/trusts), 39 (REMICs), and 40 (other). Enter the result here and on Schedule 1 (Form 1040), line 5.

Source:

Disclaimer: Always verify information with the most current Federal or State Department of Revenue Forms and Instructions. For complex tax situations, consult a CPA or tax attorney.