Schedule E Rental Income — Complete Guide for Landlords (2026)

What Is Schedule E?

Schedule E (Supplemental Income and Loss) is the IRS form used to report income or loss from rental real estate, royalties, partnerships, S corporations, and trusts. For landlords, Part I of Schedule E is where you report all rental activity for each property you own.

You file Schedule E as part of your personal Form 1040 tax return. It is not a separate filing — it attaches to your main return and the net rental income or loss flows to your Form 1040.

Who Needs to File Schedule E?

You need to file Schedule E if you:

• Received rental income from real property during the tax year
• Own a vacation rental or short-term rental (Airbnb, VRBO)
• Have a rental property that operated at a loss
• Rent out a room in your home (with some exceptions)

Even if your rental property lost money, you still need to file Schedule E to report that loss — which may be deductible against your other income depending on your situation.

What Rental Income Goes on Schedule E?

All rental income you receive must be reported on Schedule E, including:

• Monthly rent payments from tenants
• Advance rent (rent paid before the period it covers)
• Security deposits you keep (if applied to rent or kept due to damage)
• Payments for canceling a lease
• Services received instead of rent (at fair market value)

One important note: security deposits you receive are NOT income if you plan to return them to the tenant. They only become income when you keep them.

What Expenses Can You Deduct on Schedule E?

This is where landlords leave the most money on the table. Schedule E allows you to deduct ordinary and necessary expenses for managing and maintaining your rental property, including:

• Advertising — costs to find tenants, including online listings
• Auto and travel — mileage driven to your rental property for repairs, inspections, or management
• Cleaning and maintenance — routine upkeep costs between tenants
• Commissions — property management fees paid to a property manager
• Insurance — landlord insurance, fire, flood, liability premiums
• Legal and professional fees — attorney fees, CPA fees related to the rental
• Management fees — fees paid to a property management company
• Mortgage interest — interest portion of your mortgage payment (not principal)
• Other interest — interest on loans used for the property
• Repairs — costs to fix or restore the property to its original condition
• Supplies — materials purchased for the rental
• Taxes — real estate property taxes paid during the year
• Utilities — if you pay utilities on behalf of tenants
• Depreciation — annual depreciation deduction for the property itself

Repairs vs. Capital Improvements — The Critical Distinction

One of the most common and costly mistakes landlords make on Schedule E is misclassifying capital improvements as repairs.

Repairs are deductible immediately in the year you pay for them. Examples: fixing a broken window, patching a roof leak, repainting walls, replacing a broken faucet.

Capital improvements must be depreciated over time — you cannot deduct the full cost in one year. Examples: adding a new roof, replacing an HVAC system, remodeling a kitchen, adding a deck.

Getting this wrong can trigger an IRS audit or cause you to miss deductions you were entitled to take. When in doubt, consult a tax professional. See our full guide on repairs vs. improvements for rental properties.

How to Fill Out Schedule E Step by Step

• Line A: Enter the physical address of your rental property.
• Line 1 — Rents received: Enter the total rent you collected during the year for this property.
• Lines 5–19 — Expenses: Enter each deductible expense in the appropriate category. Be accurate and keep receipts for everything.
• Line 20 — Depreciation: Enter your annual depreciation deduction. If you are not sure how to calculate this, use IRS Form 4562 or ask your CPA.
• Line 21 — Total expenses: Sum of all your expenses.
• Line 22 — Income or loss: Rents received minus total expenses. If positive, this is rental income added to your taxable income. If negative, this is a rental loss (subject to passive activity rules).

Passive Activity Loss Rules — What Landlords Often Miss

If your rental property shows a loss, you may not be able to deduct all of it immediately. The IRS passive activity loss rules limit how much rental loss you can deduct against your ordinary income.

• If your AGI is $100,000 or less, you can deduct up to $25,000 of rental losses against ordinary income
• If your AGI is between $100,000 and $150,000, the $25,000 allowance phases out
• If your AGI is over $150,000, rental losses can generally only offset passive income

Losses you cannot deduct in the current year are carried forward to future years.

Common Schedule E Mistakes to Avoid

• Mixing personal and rental expenses — if you use the property personally for any days during the year, you must allocate expenses proportionally.
• Forgetting depreciation — many landlords skip this because it feels complicated, but depreciation is often your largest deduction and is required by the IRS.
• Missing the mortgage interest deduction — only the interest portion of your payment is deductible, not the principal. Your lender sends a Form 1098 showing the deductible interest.
• Not tracking mileage — every trip to your rental property for a legitimate business reason is deductible at the IRS standard mileage rate.
• Forgetting property management fees — if you use a property manager, their fees are fully deductible.

Frequently Asked Questions