Schedule E for Landlords: Reporting Rental Income and Expenses

If you own rental property as an individual, Schedule E is the form where you tell the IRS how it did. It reports your rental income and expenses, and the bottom line flows to your main tax return. Understanding the layout makes tax time faster and helps you keep better records all year. Tax rules and form details change, so confirm current instructions on IRS.gov or with a CPA.

What Schedule E is

Schedule E (Supplemental Income and Loss) is attached to your individual return, Form 1040. For landlords, the relevant section is the part for rental real estate. It is also used for other pass-through income, such as certain partnership and S corporation income, but most small landlords only use the rental section.

In general, you list each rental property, report the rent you received, subtract your deductible expenses, and arrive at a net profit or loss for each. The totals carry over to your Form 1040. The IRS explains the details in Publication 527, Residential Rental Property, and in the Schedule E instructions, linked from the IRS Schedule E page.

Who files it and who does not

• Individual owners and most single-member LLCs that are treated as disregarded entities generally report rental activity on Schedule E.
• Partnerships and multi-member LLCs taxed as partnerships normally file their own partnership return (Form 1065), and each owner’s share flows to the owner’s Schedule E.
• Short-term rental hosts who provide substantial services to guests, similar to a hotel, may have to report on a different schedule. This depends on the facts, so ask a tax professional if your rental is not a standard long-term lease.

See landlord LLC and legal structure for how ownership choices affect reporting.

The income side

Report rental income in the year you receive it if you use the cash method, which most individual landlords do. Rental income includes more than the monthly rent:

• Rent payments
• Advance rent, which is generally income in the year received
• Fees you charge tenants, such as late fees, pet fees, or lease cancellation payments
• Payments a tenant makes for something that is your expense, such as paying your water bill directly
• The fair market value of services or property a tenant provides in place of rent

Security deposits are different. A deposit you intend to return is generally not income when you receive it. If you keep some or all of it, such as for unpaid rent, the portion you keep is typically income when you keep it. One exception: if a so-called deposit is meant to be applied as the final month’s rent, the IRS treats it as advance rent, which is income when you receive it. See security deposit rules for landlords for the legal side.

The expense side

Schedule E has lines for common categories of rental expenses, including advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, utilities, depreciation, and a catch-all for other expenses.

A few points that matter:

• Mortgage interest is deductible; principal is not. Principal is not an expense, it is a payment toward your loan balance. Points paid on a rental loan are generally deducted over the life of the loan.
• Repairs are generally deductible now; improvements are depreciated. The difference is covered in repairs vs. improvements for tax purposes.
• Depreciation is often your largest deduction, even though it costs no cash. See rental property depreciation explained.
• Expenses must be ordinary, necessary, and tied to the rental. Personal costs do not belong here.
• If you use a property partly for personal purposes, the expenses usually must be split. Rules differ for vacation homes and homes you rent part of the year, so check the IRS guidance.

For a fuller checklist of what to write off, read landlord tax deductions.

A simple example

Here is how a one-property year might look. The numbers are hypothetical and rounded.

In this example the property throws off cash after expenses, but taxable income is much smaller because of depreciation. Notice that the mortgage principal payments are not in the table. They are not deductible even though they are real cash going out.

Related forms you may need

• Form 4562 for depreciation, in the year you place an asset in service or when certain other conditions apply, such as depreciation on listed property like a car
• Form 8582 to figure passive activity loss limits when you have a loss (see IRS Publication 925)
• Form 4797 when you sell rental property (see selling a rental and capital gains)
• Form 1099 filings if you pay contractors or others above the IRS reporting thresholds, which can change, so confirm current rules

Your state may also tax rental income and has its own forms.

Records to keep all year

Good records make Schedule E easy and protect you in an audit. Keep:

1. A rent ledger showing each payment by tenant and date
2. Receipts and invoices for every expense, labeled by property
3. Your mortgage interest statement and property tax bills
4. Closing statements and improvement invoices for depreciation
5. A mileage log if you drive to your rental for business purposes

The rental record keeping guide shows a simple system. Keep records for as long as the IRS recommends. For property records, that means until the period of limitations expires for the year you sell or otherwise dispose of the property, because they support your basis and depreciation.

Next steps

Open last year’s return and find your Schedule E. Check that each property is listed, that rent totals match your bank deposits, and that depreciation is correct. Set up one folder or spreadsheet with the expense categories above and update it monthly instead of at tax time. Then book a short review with a CPA who works with rental owners, especially if you have a loss, a new purchase, or a sale this year.