Schedule E is where landlords, royalty owners and pass-through owners report their income. For rentals the hard parts are what counts as income, which costs are deductible now and which must be depreciated, and when a loss is limited.
This guide covers the rental part of the schedule: income, expenses, depreciation, personal use, the passive activity loss exception and related forms, with a worked example. It follows the Schedule E instructions and IRS Publication 527 (2025 editions).
Schedule E (Form 1040) reports income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts and residual interests in REMICs. For rental real estate you complete one column per property on Part I; the instructions say that if you have more than three rental or royalty properties you attach as many Schedules E as you need. If you own only part of a property you report only your part of the income and expenses. A sole member of a domestic LLC generally files Schedule E (or Schedule C or F, if applicable).
This guide focuses on rental real estate. For the self-employment tax forms see our Schedule SE guide, and for sales of rental property see our real estate capital gains guide.
You deduct the ordinary expenses of the rental, listed on the lines of Part I. If you rent out only part of your home or property, deduct only the part of your expenses that applies to the rented part. A cash-basis taxpayer cannot deduct uncollected rent because it was never included in income. The cost of improvements is recovered through depreciation, not deducted at once. Under the general depreciation system, residential rental property is depreciated over 27.5 years, and depreciation is reported on Form 4562.
If you elect the de minimis safe harbor for tangible property, you are not required to capitalize the de minimis costs of acquiring or producing certain property and may deduct them as rental expenses on line 19. Pub. 527 and the IRS Tangible Property Regulations FAQ give the conditions. See also our depreciation recapture guide for the tax effect of depreciation when you sell.
If you also use the property as a home, the rules change. The instructions treat you as having used the unit as a home if your personal use was more than the greater of 14 days or 10% of the total days the unit was rented to others at a fair rental price. If you used the unit as a home and rented it out for fewer than 15 days in the year, do not report the rental income and do not deduct any rental expenses. Pub. 527 explains how to divide expenses between rental and personal use.
A loss from rental real estate may be reduced or not allowed this year. Your rental real estate loss is not limited by the passive activity rules, and you do not need to complete Form 8582, only if you meet all of these conditions:
Active participation does not require regular, continuous and substantial involvement. It means you took part in management decisions such as approving new tenants, deciding rental terms and approving capital or repair expenditures. If you do not meet all the conditions, use Form 8582 to figure the loss that is allowed. Missing the $100,000 MAGI condition does not always mean no deduction: Pub. 925 says the $25,000 special allowance ($12,500 if married filing separately and living apart all year) is reduced by 50% of the MAGI above $100,000 ($50,000 if married filing separately), so it is generally gone at $150,000 ($75,000). Form 8582 is where that reduction is figured. Real estate professionals complete line 43 of Schedule E; Pub. 527 and Pub. 925 give the tests.
Form 4562 for depreciation; Form 8582 to limit passive losses; Form 8824 for like-kind exchanges; Form 8960 for the Net Investment Income Tax on rental and other passive income; Form 8995 or 8995-A for the qualified business income deduction; and Form 461 if the excess business loss limitation applies. Real estate dealers, and owners such as hotel or motel owners who provide services for guests, report rental income and expenses on Schedule C instead of Schedule E (see Pub. 334).
An investor rents a house for $24,000 a year. The building (not the land) cost $220,000, which over 27.5 years is $8,000 of depreciation a year (a full year for simplicity).
| Item | Amount |
|---|---|
| Rents received | $24,000 |
| Mortgage interest | ($6,000) |
| Property taxes | ($3,000) |
| Insurance | ($1,200) |
| Repairs | ($1,800) |
| Depreciation | ($8,000) |
| Total expenses | ($20,000) |
| Net rental income | $4,000 |
If expenses had been $30,000 instead, the result would be a loss of $6,000. With MAGI of $100,000 or less, an overall net loss of $25,000 or less and active participation, and all the other conditions met, that loss is not limited by the passive activity rules. These figures are illustrations.
Instructions for Schedule E (Form 1040) (2025), IRS Publication 527: Residential Rental Property, IRS Publication 925: Passive Activity and At-Risk Rules.
Next-year note: the IRS has posted a draft 2026 Schedule E and draft 2026 instructions (dated September 21, 2026, not final). The draft keeps the same $25,000, $100,000 and 14-day/10% tests. Check the final 2026 instructions before relying on them.