Schedule E is the official IRS tax form to report supplemental income, including real estate investments. You use Schedule E (Form 1040) to report income or losses from: Individual taxpayers who generate supplemental income from renting real estate – no matter the property type – must attach a Schedule E tax form to their IRS Form 1040. From full-time real estate investors to house hackers, you must use Schedule E to report supplemental income from rental property and real estate investments on your tax return. The Schedule E tax form is primarily used by individual taxpayers. Partnerships and S corporations file Form 8825 instead, but we’ll clarify that distinction later. Despite all the work it takes to be a landlord and manage a property, the IRS classifies rental income as passive income. Because of this tax classification, real estate investors don’t pay self-employment tax. Passive business activities are activities owners don’t actively engage in on a regular, substantial and continuing basis. The IRS treats business activities that require active participation differently from passive business activities. The IRS limits losses from passive activities to the number of gains, while losses from active business activities aren’t limited. Regardless of whether or not (and to what extent) you actively participate in the operation of your rental investments, the IRS categorizes rental real estate activities as passive for tax purposes. Because the income is passive, investors can only claim losses up to their gains. Active participants can claim all their losses. Schedule E is used to report rental income earned over a given tax year. However, you may need to report business income with Schedule C if you provide certain services to your tenants. For example, if you rent properties or buildings and provide basic services (heat, light, water, trash removal, etc.), you’ll report rental income and expenses on Part I and Part II of Schedule E. If you provide services the IRS designates as “substantial” (house cleaning, food delivery and other services beyond basic ones), you’ll report your rental income and total expenses on Schedule C of Form 1040. If your business is a partnership, you’ll file Form 1065. You’ll also be subject to self-employment tax if you provide substantial services to your tenants – like regular linen services or entertainment – and must submit a Schedule C tax form.What Is Schedule E?
Schedule E Vs. Self-Employment Tax
Schedule E Vs. Schedule C
