What Is Schedule E? Definition, Who Fills One Out
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A schedule is a form that collects information about specific types of taxable income and activities.
People who have simple tax returns may not have to worry about anything but Form 1040 (the main document that makes up a tax return). But if your tax life is a bit complicated (think: investments, itemized deductions, business income), a schedule or two may be in your tax filing future.
If you deal with rentals, royalties or other types of real estate investments, one of those forms is Schedule E.
What is Schedule E?
Schedule E is an IRS tax form that collects information about income that was earned or lost through:
Real estate rentals.
Royalties.
Partnerships.
S-corporations.
Trusts.
Estates.
Residual interest from real estate mortgage investment conduits (REMICs).
Who fills out Schedule E?
Schedule E applies to a few different types of taxable scenarios. Generally, the following people may need to file a Schedule E along with their 1040 return.
Rental property owners
If you rent out portions of your home or own a house that you rent out, income and expenses related to that rental activity are typically reported on Schedule E.
Take note, however, that if you conduct certain services that are considered “conveniences” for your tenants or renters, such as cleaning or maid service, the IRS may view the money you earn as business income, meaning you may need to file a Schedule C instead.
People who collect royalties
If you’re collecting royalties from a one-time gig or a more casual income stream that’s not your W-2 or main job, you may need to report that income on Schedule E. For example, that could mean royalties you collect from a book you published as a side project, or from oil, gas or mineral leases you hold as an investor.
If the royalties you’re collecting are part of your business as a self-employed individual, you may need to fill out a Schedule C instead.
People who receive at least $10 worth of royalties during the tax year typically get a 1099-MISC statement by January from the entity that paid out the royalties. The information on that document can help you to fill out Schedule E (or C).
Schedule K-1 recipients
If you’re someone who is a partner or an S-corporation shareholder, the company’s earnings and losses are typically “passed through” from the entity to you. Generally, this means the income you’ve earned or lost through that entity (and the subsequent tax consequences) flows through to you and gets reported on your individual tax return via Schedule E.
By March 15 (or three months after the company’s fiscal year ends), you’ll get a document called a Schedule K-1 from the partnership or S-corp outlining your earnings and losses. The information on that document should guide you in filling out a Schedule E.
Certain beneficiaries, plus some investors
If you’re a beneficiary of an estate or a trust, you should also receive a Schedule K-1 outlining your earnings and losses, which you’ll need to reference when filing Schedule E.
People who invest in REMICs typically use this schedule to report their earned income from residual interests for each quarter of the tax year. Because REMICs are pass-through structures, the entity itself doesn’t pay taxes on earnings since that income is passed on to the investors who are then responsible for it.
How to fill out Schedule E
Schedule E covers four different taxable situations. You only need to fill out the sections that apply to you. Before you begin, make sure to grab any supporting documents that you might need to prove your income earnings, losses and expenses.
Part I: Income or Loss from Rental Real Estate and Royalties
Documents you may need to reference:
Form 1098 Mortgage Interest Statement.
1099-MISC (royalty income statements).
Lease agreements.
Utility bills.
Property tax statements.
This section asks for information about your rental property or taxable royalties. You’ll need to provide details about the property types, locations and how often throughout the year they were used for rentals versus for personal use. This section also asks about your total rental income or royalties received, and it allows you to tally up the sum of your earnings as well as potentially deductible expenses.
Be aware that there are a lot of rules around navigating deductible expenses, but you might be able to lower your rental or royalty income.
See Publication 527 for a full breakdown of deductible expenses, limitations, and how they work, plus a list of other tax forms you may need to fill out.
Part II: Income or Loss From Partnerships and S Corporations
Documents you may need to reference:
Schedule K-1.
Form 8582.
Form 4562.
This section deals with reporting income and losses related to your membership in a partnership or as a shareholder in an S-Corp. You’ll need to supply information about the name of the company, whether it was a foreign partnership and provide an EIN.
When you receive your Schedule K-1 by March, the documentation should share instructions for how to report your shares on Schedule E. You don’t need to submit a copy of it when you file your return.
Schedule E may only allow you to deduct losses to the extent of your investments — but there is a lot of fine print surrounding how loss deductions work in general. See the instructions for Schedule E for more information.
Part III: Income or Loss From Estates and Trusts
Documents you may need to reference:
Schedule K-1.
Similar to Part II, this section deals with income earned or lost as a beneficiary of a trust or an estate. Your fiduciary should send a Schedule K-1 to you by mid-March, which outlines your total earnings and losses, as well as instructions for how to report those items on your Schedule E. Schedule K-1 is an information return and for your records only — you don’t need to submit it to the IRS when you file.
Part IV: Income or Loss From Real Estate Mortgage Investment Conduits (REMICs)
Documents you may need to reference:
Schedule Q.
Investors who have residual interests in REMICs also need to report their share of the REMIC’s taxable earnings or losses for each quarter.
Your REMIC should send you a statement each quarter called Schedule Q, also known as Form 1066, that outlines your taxable income or loss and expenses for that time period. You won’t need to submit Schedule Q when you file your return — keep it for your records and to help you fill out the applicable sections of Schedule E.
When do you file Schedule E?
Schedule E is a supplemental tax form that is submitted along with your primary tax return (Form 1040) by the mid-April tax filing deadline or by mid-October with an extension.
Partners and shareholders should remember that the Schedule K-1 documents they’ll need to fill out Schedule E typically arrive around mid-March, which could put some pressure on filing in time.
If you’re feeling the crunch, filing Form 4868 for an extension could give you some extra time — just don’t forget that extensions only push out the deadline to file, not to pay.
If you owe a tax bill, a good estimate is still due by the regular filing deadline. If you have a bill and forget to submit an estimated payment, you could be racking up some interest and penalties in the process.
Where to get Schedule E
If you’re wondering how to access Schedule E, most online tax software programs will help you fill one out. Just keep in mind that tax-prep companies typically offer tiered packages that increase in price as your tax return needs get more complex. Having a Schedule E on your to-do list could mean paying a little extra to get tax help.
Ready to file? Check out the top-rated software
If you file on your own, you can access Schedule E directly from the IRS website or through IRS Free Fillable Forms. If you’re filing with a tax pro, they’ll handle filling out the return, but you’ll need to ensure you’ve provided them with all the documents they need to do so correctly.
» MORE: How to find a CPA near you
Schedule E vs. Schedule C
In short, Schedule E collects information about passive income, whereas Schedule C collects information about business income and is typically used by sole proprietors or single-member LLCs.
Deciding which document to use when reporting can be far more complicated than this definition implies. It can depend on how you participate in the taxable activity, among many other factors. A trusted tax professional, such as a CPA, or quality tax software can help you differentiate.
