How to Report Long-Term Rental Income on Schedule E

You generally report income and expenses from a long-term residential rental on Schedule E, then carry the result to your federal income tax return. The amount that reaches your return depends on your deductible expenses , depreciation, and any limits on rental losses.

A bank deposit total alone won't tell you your taxable rental income. You'll also need to separate refundable deposits from rent, identify improvements, and account for any personal use of the property.

Start by gathering records for each rental and identifying how the property was used during the year.

When to use Schedule E for a rental property

Individual owners generally use Schedule E (Form 1040), Part I, for residential rental income when they provide basic services such as heat, light, and trash collection. A long-term lease and routine property maintenance usually fit that approach.

More substantial services or a different ownership structure can change the reporting. For example, a partnership or corporation generally reports its rental activity on its own tax return, with the owners receiving information needed for their individual returns.

On Schedule E, each property has its own column. You enter its address, property type, fair-rental days, and personal-use days before reporting income and expenses. One Schedule E has room for three properties; owners with more properties use additional schedules.

The IRS Schedule E instructions explain the property details and line entries. Our Form 1040 checklist for side income also shows where rental activity fits alongside wages and other income.

Total rent and other rental income

For a typical cash-basis owner, rental income generally counts in the year it's received. Start with tenant payments and property management statements, then reconcile those amounts to your bank records.

Include rent received in advance

Report rent payments, including advance rent, in the year you receive them. That applies even when the payment covers a rental period in the following year.

Also include other amounts a tenant pays for use of the property, such as a lease cancellation payment. If a tenant pays one of your rental expenses, the payment is generally rental income to you. You may also be able to deduct that expense if it qualifies.

A property manager's statement may show rent collected before fees and the smaller amount deposited into your account. Use the gross rental income rather than treating the net deposit as the full rent. The management fee generally belongs with expenses.

Separate security deposits from rent

A security deposit you intend to return to the tenant generally isn't income when you receive it. Keep it separate from rent in your records so it doesn't inflate your income total.

If you keep part or all of the deposit because the tenant violated the lease, generally include the retained amount in income for the year you keep it. A deposit designated as the tenant's final rent payment is advance rent and is generally income when received.

The IRS covers these distinctions in Publication 527, Residential Rental Property.

Categorize ordinary rental expenses

Ordinary and necessary expenses for operating and maintaining a rental are generally deductible. For a cash-basis owner, the deduction generally belongs in the year the expense is paid.

Put costs in their Schedule E categories

Schedule E has separate lines for common costs, including advertising, insurance, management fees, repairs, property taxes, and utilities. Mortgage interest paid to a financial institution generally goes on line 12; other mortgage interest generally goes on line 13.

Other qualifying costs without a separate line can go on line 19. Keep a description and supporting records for those amounts. Homeowners association fees, for example, may belong there when they're ordinary rental operating expenses.

Mortgage principal is different from interest. The principal portion of your payment reduces your loan balance and isn't a rental expense deduction.

Distinguish repairs from improvements

Repairs generally keep a property in operating condition. Fixing a broken window or repairing a leak can be a current expense when the work qualifies as a repair.

An improvement generally adds value, restores property, or adapts it to a new use. Replacing an entire roof, for example, generally must be capitalized and recovered under depreciation rules rather than deducted as a routine repair.

Keep invoices that describe the work, not just the amount paid. You can't deduct the value of your own labor, though qualifying materials you purchase may be deductible or added to the property's basis, depending on the work.

Calculate depreciation on the rental property

Depreciation lets you recover the cost of qualifying rental property over time. It's an expense for tax purposes even though you don't write a depreciation check each year.

Separate the building from the land

Land isn't depreciable. When you buy a rental property, allocate the applicable cost between the land and the building using their relative fair market values. Certain purchase-related costs may also be part of your basis.

Residential rental buildings generally use a 27.5-year recovery period under the general depreciation system. Depreciation generally begins when the property is placed in service, meaning it's ready and available for rent. The first and final years use a mid-month convention rather than a full year's deduction.

Keep your closing statement and records supporting the land allocation. If you converted a former home to a rental, special basis rules apply, so the original purchase price alone may not be the right depreciation starting point.

Track improvements and prior depreciation

Qualifying improvements are generally tracked separately from the original building. Appliances, furniture, and other property can have different recovery periods and rules.

Report the year's allowable depreciation on Schedule E, line 18. Form 4562 is generally required when you first place depreciable property in service and in certain other situations.

Keep a tax depreciation schedule with your prior returns. Book depreciation in accounting software may differ from tax depreciation, so the bookkeeping balance alone doesn't establish the tax deduction. Depreciation allowed or allowable also affects your adjusted basis when you sell, which can affect the gain reported on the sale.

Account for personal use of the property

Schedule E asks for both fair-rental days and personal-use days. A fair-rental day generally means the property was rented at a fair rental price. A day when it was available but vacant isn't a fair-rental day.

Personal use can include days you use the home yourself or allow certain relatives or other people to use it under the IRS rules. Time spent working substantially full time on repairs and maintenance generally isn't counted as personal use.

When a property has both rental and personal use, you generally allocate shared expenses between those uses. The rental portion may face additional deduction limits depending on how much you used the home personally.

Keep a calendar alongside lease records and maintenance receipts. It gives your preparer a way to separate tenant occupancy, personal stays, and work on the property. Publication 527 addresses the allocation rules for homes used for both rental and personal purposes.

Complete Schedule E and calculate the result

Once you've organized the records, enter the figures for each property in its own column. The 2025 Schedule E form shows how the amounts fit together.

Enter income, expenses, and depreciation

Put gross rents on line 3. Enter the deductible expenses on the appropriate lines, including depreciation on line 18 and other qualifying expenses on line 19.

Line 20 totals the expenses for each property. Line 21 then subtracts expenses from rental income to show that property's preliminary income or loss.

Answer the form's questions about whether you made payments requiring Forms 1099 and whether you filed the required forms. The answer depends on your rental activity and the payments you made; paying a contractor doesn't by itself establish every reporting requirement.

Apply limits before transferring a loss

A negative amount on line 21 isn't always the loss you can deduct on your return. At-risk and passive activity rules may limit the current deduction. Line 22 is used for deductible rental real estate losses after applicable limitations.

Carry the resulting rental and royalty total through line 26. If you also have income or losses reported in other parts of Schedule E, the form's instructions direct you to combine the applicable amounts on line 41.

Keep the supporting calculation with your return, especially when a loss is limited. You'll need that information to track deductions that may be available in a later year.

Understand the rental loss limits

Rental real estate activity is generally passive for federal tax purposes. Passive losses generally can offset passive income, but they usually can't offset wages or other nonpassive income unless an exception applies.

Owners who actively participate in a rental may qualify for a special allowance of up to $25,000 against nonpassive income. Active participation can include meaningful management decisions, such as approving tenants or rental terms. Ownership and other requirements also apply.

For many filers, the allowance begins to phase out when modified adjusted gross income exceeds $100,000 and generally disappears at $150,000. Different limits apply to married taxpayers filing separately.

If the passive activity rules prevent you from deducting the full loss, the unused amount generally carries forward. It may become deductible against future passive income or when you dispose of your entire interest in the activity in a qualifying taxable transaction.

Form 8582 is used to calculate passive activity loss limits when required. Because at-risk limits and other rules can also apply, a tax professional can help determine which losses are available for the year.

Carry the net amount to your tax return

For an individual with only the applicable rental and royalty amounts on Schedule E, the total generally moves from Schedule E, line 26, to Schedule 1, line 5. When other Schedule E parts apply, line 41 is generally the amount carried to Schedule 1 instead.

Schedule 1 combines that figure with other additional income. Its total flows to Form 1040, where it becomes part of your overall income calculation.

Ordinary rental income generally isn't subject to self-employment tax, although exceptions can apply when the nature of the activity or services changes. Rental profit can still increase your income tax, so consider its effect when planning withholding or estimated tax payments.

Save the filed Schedule E with your leases, income summaries, expense records, depreciation schedule, and any loss carryforward calculation. The IRS provides the form and instructions through its Schedule E information page.

Keep the records behind the rental result

A reliable Schedule E starts with gross rent and well-categorized costs , then accounts for depreciation and any limits on losses. Refundable deposits, mortgage principal, and capital improvements each need treatment separate from ordinary rental expenses.

If you'd like help preparing your return, our tax and accounting team can help organize your rental records and calculate the amounts that belong on Schedule E.