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Instructions for Schedule E (Form 1040)

Specific Instructions

Filers of Form 1041.(p4)
If you are a fiduciary filing Schedule E with Form 1041, enter the estate's or trust's employer identification number (EIN) in the space for Your social security number.

Part I(p4)

Before you begin, see Line 3 and Line 4, later, to determine if you should report your rental real estate and royalty income on Schedule C, Schedule C-EZ, or Form 4835, instead of Schedule E.

Line A(p4)

If you made any payments in 2016 that would require you to file any Forms 1099, check the Yes box. Otherwise, check the No box. See the 2016 General Instructions for Certain Information Returns if you are unsure whether you were required to file any Forms 1099. Also see the separate instructions for each Form 1099.
Generally, you must file Form 1099-MISC if you paid at least $600 in rents, services, prizes, medical and health care payments, and other income payments. The Guide to Information Returns in the 2016 General Instructions for Certain Information Returns has more information, including the due dates for the various information returns. You can find more information at

Income or Loss From Rental Real Estate and Royalties(p4)

Use Part I to report the following.
If you own a part interest in a rental real estate property, report only your part of the income and expenses on Schedule E.
Complete lines 1a, 1b, and 2 for each rental real estate property. For royalty property, enter code 6 on line 1b and leave lines 1a and 2 blank for that property.
If you have more than three rental real estate or royalty properties, complete and attach as many Schedules E as you need to list them. But answer lines A and B and fill in lines 23a through 26 on only one Schedule E. The figures on lines 23a through 26 on that Schedule E should be the combined totals for all properties reported on your Schedules E. If you are also using page 2 of Schedule E, use the same Schedule E on which you entered the combined totals for Part I.
Personal property.(p4)
Do not use Schedule E to report income and expenses from the rental of personal property, such as equipment or vehicles. Instead, use Schedule C or C-EZ if you are in the business of renting personal property. You are in the business of renting personal property if the primary purpose for renting the property is income or profit and you are involved in the rental activity with continuity and regularity.
If your rental of personal property is not a business, see the instructions for Form 1040, lines 21 and 36, to find out how to report the income and expenses.
Extraterritorial income exclusion.(p5)
Except as otherwise provided in the Internal Revenue Code, gross income includes all income from whatever source derived. Gross income, however, does not include extraterritorial income that is qualifying foreign trade income under certain circumstances. Use Form 8873 to figure the extraterritorial income exclusion. Report it on Schedule E as explained in the Instructions for Form 8873.
Chapter 11 bankruptcy cases.(p5)
If you were a debtor in a chapter 11 bankruptcy case, see Chapter 11 Bankruptcy Cases under Income in the Instructions for Form 1040.

Line 1a(p5)

For rental real estate property only, show the street address, city or town, state, and ZIP code. If the property is located in a foreign country, enter the city, province or state, country, and postal code.

Line 1b(p5)

Enter one of the codes listed under Type of Property in Part I of the form.
Land rental.(p5)
Enter code 5 for rental of land. For details about the tax treatment of income from this type of rental property, see Rental of Nondepreciable Property in Pub. 925.
Enter code 7 for self-rental if you rent property to a trade or business in which you materially participated. See Rental of Property to a Nonpassive Activity in Pub. 925 for details about the tax treatment of income from this type of rental property.
Enter code 8 if the property is not one of the other types listed on the form. Attach a statement to your return describing the property.

Line 2(p5)

If you rented out a dwelling unit that you also used for personal purposes during the year, you may not be able to deduct all the expenses for the rental part. Dwelling unit (unit) means a house, apartment, condominium, mobile home, boat, or similar property.
For each property listed on line 1a, report the number of days in the year each property was rented at fair rental value and the number of days of personal use.
A day of personal use is any day, or part of a day, that the unit was used by:
Do not count as personal use:
Whether or not you can deduct expenses for the unit depends on whether or not you used the unit as a home in 2016. You used the unit as a home if your personal use of the unit was more than the greater of:
If you did not use the unit as a home, you can deduct all your expenses for the rental part, subject to the at-risk rules and the passive activity loss rules explained earlier.
If you did use the unit as a home and rented the unit out for fewer than 15 days in 2016, do not report the rental income and do not deduct any rental expenses. If you itemize deductions on Schedule A, you can deduct allowable interest, taxes, and casualty losses.
If you did use the unit as a home and rented the unit out for 15 or more days in 2016, you may not be able to deduct all your rental expenses. You can deduct all the following expenses for the rental part on Schedule E.
If any income is left after deducting these expenses, you can deduct other expenses, including depreciation, up to the amount of remaining income. You can carry over to 2017 the amounts you cannot deduct.
Regardless of whether you used the unit as a home, expenses related to days of personal use do not qualify as rental expenses. You must allocate your expenses based on the number of days of personal use to total use of the property. For example, you used your property for personal use for 7 days and rented it for 63 days. In most cases, 10% (7÷70) of your expenses are not rental expenses and cannot be deducted on Schedule E.
See Pub. 527 for details.
Check the box for QJV if you owned the property as a member of a qualified joint venture reporting income not subject to self-employment tax. See Qualified Joint Venture, earlier.

Line 3(p5)

If you received rental income from real estate (including personal property leased with real estate), report the income on line 3. Use a separate column (A, B, or C) for each rental property. Include income received for renting a room or other space.
If you received services or property instead of money as rent, report the fair market value of the services or property as rental income on line 3.
If you provided significant services to the renter, such as maid service, report the rental activity on Schedule C or C-EZ, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.
If you were a real estate dealer, include only the rent received from real estate (including personal property leased with this real estate) you held for the primary purpose of renting to produce income. Do not use Schedule E to report income and expenses from rentals of real estate you held for sale to customers in the ordinary course of your business as a real estate dealer. Instead use Schedule C or C-EZ for those rentals.
For more details on rental income, see Pub. 527.
Rental income from farm production or crop shares.(p6)
Report farm rental income and expenses on Form 4835 if:

Line 4(p6)

Report on line 4 royalties from oil, gas, or mineral properties (not including operating interests); copyrights; and patents. Use a separate column (A, B, or C) for each royalty property.
If you received $10 or more in royalties during 2016, the payer should send you a Form 1099-MISC or similar statement by January 31, 2017, showing the amount you received. Report this amount on line 4.
If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C or C-EZ.
You may be able to treat amounts received as royalties for the transfer of a patent or amounts received on the disposal of coal and iron ore as the sale of a capital asset. For details, see Pub. 544.
Enter on line 4 the gross amount of rent and royalty income, even if state or local taxes were withheld from oil or gas payments you received. Include taxes withheld by the producer on line 16.

General Instructions for Lines 5 Through 21(p6)

Enter your rental and royalty expenses for each property in the appropriate column. You can deduct all ordinary and necessary expenses, such as taxes, interest, repairs, insurance, management fees, agents' commissions, and depreciation.
Do not deduct the value of your own labor or amounts paid for capital investments or capital improvements.
Enter your total expenses for mortgage interest (line 12), depreciation expenses and depletion (line 18), and total expenses (line 20) on lines 23c through 23e, respectively, even if you have only one property.
Renting out part of your home.(p6)
If you rent out only part of your home or other property, deduct the part of your expenses that applies to the rented part.
Credit or deduction for access expenditures.(p6)
You may be able to claim a tax credit for eligible expenditures paid or incurred in 2016 to provide access to your business for individuals with disabilities. See Form 8826 for details.
You can also elect to deduct up to $15,000 of qualified costs paid or incurred in 2016 to remove architectural or transportation barriers to individuals with disabilities and the elderly.
You cannot take both the credit and the deduction for the same expenditures.

Line 6(p6)

You can deduct ordinary and necessary auto and travel expenses related to your rental activities, including 50% of meal expenses incurred while traveling away from home. In most cases, you can either deduct your actual expenses or take the standard mileage rate. You must use actual expenses if you used more than four vehicles simultaneously in your rental activities (as in fleet operations). You cannot use actual expenses for a leased vehicle if you previously used the standard mileage rate for that vehicle.
You can use the standard mileage rate for 2016 only if you:
If you take the standard mileage rate, multiply the number of miles driven in connection with your rental activities by 54 cents a mile. Include this amount and your parking fees and tolls on line 6.
You cannot deduct rental or lease payments, depreciation, or your actual auto expenses if you use the standard mileage rate.
If you deduct actual auto expenses:
If you claim any auto expenses (actual or the standard mileage rate), you must complete Part V of Form 4562 and attach Form 4562 to your tax return.
See Pub. 527 and Pub. 463 for details.

Line 10(p6)

Include on line 10 fees for tax advice and the preparation of tax forms related to your rental real estate or royalty properties.
Do not deduct legal fees paid or incurred to defend or protect title to property, to recover property, or to develop or improve property. Instead, you must capitalize these fees and add them to the property's basis.

Lines 12 and 13(p6)

In most cases, to determine the interest expense allocable to your rental activities, you must have records to show how the proceeds of each debt were used. Specific tracing rules apply for allocating debt proceeds and repayment. See Pub. 535 for details.
If you have a mortgage on your rental property, enter on line 12 the amount of interest you paid for 2016 to banks or other financial institutions.
Do not deduct prepaid interest when you paid it. You can deduct it only in the year to which it is properly allocable. Points, including loan origination fees, charged only for the use of money must be deducted over the life of the loan.
If you paid $600 or more in interest on a mortgage during 2016, the recipient should send you a Form 1098 or similar statement by January 31, 2017, showing the total interest received from you.
If you paid more mortgage interest than is shown on your Form 1098 or similar statement, see Pub. 535 to find out if you can deduct part or all of the additional interest. If you can, enter the entire deductible amount on line 12. Attach a statement to your return explaining the difference. In the space to the left of line 12, enter See attached.
Note.(p7) If the recipient was not a financial institution or you did not receive a Form 1098 from the recipient, report your deductible mortgage interest on line 13.

If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on the mortgage, and the other person received Form 1098, report your share of the deductible interest on line 13. Attach a statement to your return showing the name and address of the person who received Form 1098. On the dotted line next to line 13, enter See attached.


Line 14(p7)

You can deduct the amounts paid for repairs and maintenance. However, you cannot deduct the cost of improvements. Repairs and maintenance costs are those costs that keep the property in an ordinarily efficient operating condition. Examples are fixing a broken lock or painting a room.
In contrast, improvements are amounts paid to better or restore your property or adapt it to a new or different use. Examples of improvements are adding substantial insulation or replacing an entire HVAC system. Amounts paid to improve your property generally must be capitalized and depreciated (that is, they cannot be deducted in full in the year they are paid or incurred). See Line 18, later.

Line 17(p7)

You can deduct the cost of ordinary and necessary telephone calls related to your rental activities or royalty income (for example, calls to the renter). However, the base rate (including taxes and other charges) for local telephone service for the first telephone line into your residence is a personal expense and is not deductible.

Line 18(p7)

Depreciation is the annual deduction you must take to recover the cost or other basis of business or investment property having a useful life substantially beyond the tax year. Land is not depreciable.
Depreciation starts when you first use the property in your business or for the production of income. It ends when you deduct all your depreciable cost or other basis or no longer use the property in your business or for the production of income.
See the Instructions for Form 4562 to figure the amount of depreciation to enter on line 18.
You must complete and attach Form 4562 only if you are claiming:
See Pub. 527 for more information on depreciation of residential rental property. See Pub. 946 for a more comprehensive guide to depreciation.
If you have an economic interest in mineral property, you may be able to take a deduction for depletion. Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). See Pub. 535 for details.
Separating cost of land and buildings.(p7)
If you buy buildings and your cost includes the cost of the land on which they stand, you must divide the cost between the land and the buildings to figure the basis for depreciation of the buildings. The part of the cost that you allocate to each asset is the ratio of the fair market value of that asset to the fair market value of the whole property at the time you buy it.
If you are not certain of the fair market values of the land and the buildings, you can divide the cost between them based on their assessed values for real estate tax purposes.

Line 19(p7)

Enter on line 19 any ordinary and necessary expenses not listed on lines 5 through 18.

Line 21(p7)

If you have amounts for which you are not at risk, use Form 6198 to determine the amount of your deductible loss. Enter that amount in the appropriate column of Schedule E, line 21. In the space to the left of line 21, enter Form 6198. Attach Form 6198 to your return. For details on the at-risk rules, see At-Risk Rules, earlier.

Line 22(p7)

Do not complete line 22 if the amount on line 21 is from royalty properties.
If you have a rental real estate loss from a passive activity (defined earlier), the amount of loss you can deduct may be limited by the passive activity loss rules. You may need to complete Form 8582 to figure the amount of loss, if any, to enter on line 22. See the Instructions for Form 8582 to determine if your loss is limited.
If your rental real estate loss is not from a passive activity or you meet the exception for certain rental real estate activities (explained earlier), you do not have to complete Form 8582. Enter the loss from line 21 on line 22.
If you have an unallowed rental real estate loss from a prior year that after completing Form 8582 you can deduct this year, include that loss on line 22.