Schedule E (Form 1040): How to Report Supplemental Income and Loss
If you earn income from rental properties, royalties, partnerships, S corporations, estates, or trusts, you may need to report it on Schedule E (Form 1040), also known as Supplemental Income and Loss.
This IRS tax schedule helps individuals report certain types of income and expenses on their federal income tax returns. Knowing when to use Schedule E, which sections to complete, and how to report income or losses can help you prepare an accurate return.
What Is Schedule E?
Schedule E is an IRS tax form used to report income or loss from several sources, including rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits (REMICs).
Individuals generally attach Schedule E to Form 1040, Form 1040-SR, or Form 1040-NR, as applicable. Fiduciaries may also use it when filing Form 1041 for an estate or trust.
Schedule E is not used for every type of supplemental income. For example, sole proprietors generally report business income and expenses on Schedule C, while corporations typically report their income on the applicable corporate tax return.
Who Needs to File Schedule E?
You may need to file Schedule E if you receive reportable income or losses from one or more of the following sources.
1. Rental Real Estate
Property owners generally use Part I of Schedule E to report rental income and eligible expenses from residential or commercial real estate.
Examples include income from:
Long-term residential rental properties.
Commercial buildings or office space.
Vacation properties that qualify for Schedule E reporting.
Land rented to another party.
Rental income may be offset by eligible expenses, such as property taxes, mortgage interest, insurance, repairs, management fees, and depreciation. The deductible amount depends on the applicable tax rules and the nature of the expense.
Certain short-term rental activities involving substantial services to guests may need to be reported on Schedule C instead. Rental income from personal property, such as equipment or vehicles, also follows different reporting rules.
2. Royalties
Royalties can arise when you allow another party to use or benefit from property you own, such as mineral rights, copyrights, patents, or certain licensing rights.
Part I of Schedule E is generally used to report royalty income that is not treated as income from a trade or business. If you operate a business as a writer, inventor, artist, or other self-employed professional, your royalty income may instead belong on Schedule C.
3. Partnerships
Partners generally receive Schedule K-1 (Form 1065), which reports their share of partnership income, deductions, credits, and other tax items.
Individuals generally report applicable partnership income or loss on Part II of Schedule E. The partnership itself normally files Form 1065; the individual partner reports their share on their own tax return.
4. S Corporations
Shareholders of S corporations generally receive Schedule K-1 (Form 1120-S), which reports their share of the corporation's tax items.
Applicable income or loss is generally reported in Part II of Schedule E. However, S corporation shareholders must follow additional rules governing stock and debt basis, at-risk amounts, and passive activity losses. Form 7203 may also be required in certain situations.
5. Estates and Trusts
Beneficiaries of estates or trusts may receive Schedule K-1 (Form 1041), which reports their share of taxable income and other items.
Applicable income or loss is generally reported in Part III of Schedule E. The estate or trust has its own filing obligations, which may include Form 1041.
6. Real Estate Mortgage Investment Conduits (REMICs)
A taxpayer who holds a residual interest in a REMIC may receive tax information reported on Schedule Q (Form 1066).
Part IV of Schedule E is used to report the applicable amounts from Schedule Q.
Who Generally Does Not Use Schedule E?
Not every business owner reports income on Schedule E. The correct form depends on the type of income and the business's federal tax classification.
Sole proprietors: Generally report operating income and expenses on Schedule C. Rental real estate or qualifying royalty income may belong on Schedule E.
Single-member LLC owners: Often report income according to the LLC's default or elected federal tax classification. Rental income may be reported on Schedule E, while operating business income is generally reported on Schedule C.
Partnerships: Generally file Form 1065 and issue Schedule K-1 forms to their partners. The individual partners generally report applicable items on their own returns.
S corporations: Generally file Form 1120-S and issue Schedule K-1 forms to shareholders.
C corporations: Generally file Form 1120 rather than Schedule E to report corporate income.
A business entity's owners may need Schedule E even though the entity itself files a different tax return.
Schedule E Instructions: How to Complete Each Part
Schedule E contains five parts. Complete the sections that apply to your income and tax situation, following the instructions for the relevant tax year.
Part I: Income or Loss From Rental Real Estate and Royalties
Part I is used to report eligible rental real estate and royalty income and expenses.
For each rental property, you generally provide its address, property type, rental income, and applicable expenses. Expenses are entered in the appropriate categories, and the totals are used to calculate net rental income or loss.
Common expenses may include:
Advertising and management fees.
Insurance and property taxes.
Mortgage interest.
Repairs and maintenance.
Utilities and other eligible operating expenses.
Depreciation, when applicable.
Only expenses permitted under the tax rules should be deducted. Improvements to property generally must be capitalized and depreciated rather than deducted entirely in the year paid.
If you have more than three rental properties or royalty properties, you may need additional Schedule E pages. Follow the form instructions for reporting combined totals.
Part II: Income or Loss From Partnerships and S Corporations
Part II reports your share of applicable income, deductions, and losses from partnerships and S corporations.
You generally use information from Schedule K-1 to identify the entity and report the relevant tax items. The form distinguishes between passive and nonpassive income or loss, as applicable.
A reported loss is not automatically deductible in full. Depending on the circumstances, basis limitations, at-risk rules, passive activity rules, and excess business loss limitations may restrict the amount you can claim.
Keep your Schedule K-1 and supporting records with your tax documents. You generally do not attach the K-1 to your individual return unless the applicable instructions specifically require it.
Part III: Income or Loss From Estates and Trusts
Part III is used to report applicable income or losses passed through to you from an estate or trust.
Use the information provided on Schedule K-1 (Form 1041) and follow its instructions to determine where each item belongs. Some amounts may have separate reporting requirements or retain their tax character when passed through to a beneficiary.
Part IV: Income or Loss From REMICs
Part IV applies to residual interest holders in real estate mortgage investment conduits.
If this section applies to you, use the information provided on Schedule Q (Form 1066) to report the required amounts. Most taxpayers who do not hold a REMIC residual interest will not need to complete this part.
Part V: Summary
Part V summarizes applicable amounts from the preceding sections and other specified forms.
Depending on your circumstances, the summary may include income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and REMICs, as well as certain farming or fishing amounts reported from other forms.
The resulting total is carried to the appropriate line of your individual income tax return or other applicable return, following the current form instructions.
When Is Schedule E Due?
Schedule E is generally submitted with the tax return to which it is attached. For most individuals filing a calendar-year federal income tax return, the regular filing deadline is typically April 15 of the following year.
For example, a 2025 individual income tax return is generally due April 15, 2026. The deadline can change when a weekend, legal holiday, or special IRS extension applies.
An extension to file generally does not extend the time to pay any tax due. If you expect to owe tax, you may need to make payment by the original deadline to avoid potential interest and penalties.
What Records Should You Keep?
Accurate records help support the figures reported on Schedule E and make tax preparation easier.
Depending on the income source, retain documents such as:
Rental agreements and records of rent received.
Receipts and invoices for eligible property expenses.
Mortgage interest statements and property tax records.
Depreciation schedules and records of property improvements.
Schedule K-1 forms from partnerships, S corporations, estates, or trusts.
Schedule Q forms and other REMIC-related tax statements.
Records of estimated tax payments and other relevant tax documents.
Keep records for as long as necessary under the applicable IRS recordkeeping rules. The appropriate retention period can vary depending on the transaction and the tax circumstances.
Final Thoughts
Schedule E is an important part of federal tax reporting for individuals who receive certain types of supplemental income. It covers eligible rental real estate and royalty income, pass-through income from partnerships and S corporations, income from estates and trusts, and certain REMIC interests.
The key is to identify the correct reporting form for each income source, complete the applicable parts of Schedule E, and apply any limitations that affect deductible losses. Consult the IRS instructions for the relevant tax year or a qualified tax professional if your situation involves complex rental activities, pass-through losses, or multiple income sources.
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