Schedule E - Rental Real Estate

Income or loss from real estates, partnerships, royalties, S Corporations, estates and trusts are reported on Form 1040, Schedule E. Normally, income or loss from real real activities, be it residential or commercial real estate are reported on this form.

Rental of personal property cannot be reported on Schedule E unless the property is leased with real estate. Income and expenses related to the rental of personal property (for instance, a car or equipment) would generally be reported on a Schedule C in case the rental activity is managed as part of a business. In the event that a rental activity of personal property has no connection to a business, it would be treated as Other Income reported on Schedule 1, Line 21, while the expenses from such activity would be reported as adjustment to income on Line 36 of Schedule 1.

To Enter Real Estate Income on Schedule E:

Go to the Main Menu of the tax return (Form 1040)
From the menu, select Income menu
Proceed to Rents, Royalties, Entities, (Sch E, K-1, 4835, 8582)
Select New (to enter a new property that had not been previously included), or double click on the property entry that you would like to ‘Edit’. In case you used the tax program in the preparation of the previous year return, select Pull to pull the data forward.
Use the dropdown menu to select the type of property then enter the rental property’s address.
In the Fair Rental Days box, enter the number of days through the tax year that the property was rented. In the Personal Use Days box, enter the number of days the rental property was personally used.
In case the property is eligible for the Qualified Business Income Deduction (Section 199A Deduction), choose the QBI reason from the dropdown menu.
Select OK after entering the basic information of the rental property after which the Schedule E - Rents & Royalties Edit Menu will appear. You can enter the Income and Expenses here.

Enter the Percentage of Ownership and the Percentage of Occupancy on the Schedule E - Rents & Royalties Edit Menu. In case the percentage of occupancy or ownership is not 100%, it will affect any rental income or expense that ought to be shared depending on the ownership of the taxpayer of the rental property or the occupancy percentage of the property.

Generally, the total gross amount of rent earned from the property is entered as the Rental Income on Schedule E. In the event that the ownership percentage is below 100%, enter the sum of the gross rental income as Prorated Rents Received and the program will then automatically calculate part of the rental income belonging to the taxpayer.

In the Expenses Menu, you can deduct all the expenses suffered from the rental property. In case the Percentage of Occupancy is below 100%, the entire amount of direct expenses suffered in the maintenance of the rental property can be entered at 100%. The entire gross expense of indirect expenses related to the entire rental property need to be entered as Prorated Expense after which the program instantly computes the part of the indirect expense related to the rental property activity, excluding the deductible part. Direct expenses include advertising, commissions or management fees to real estate agents, among others while indirect expenses include taxes, mortgage interest, utilities, among others.

Supporting notes can be created to monitor each expense, when entering the expenses. For instance, select the F10 key on your keyboard as you enter Advertising expenses. Select New, key in a description and the amount paid. Repeat the steps above to add other items into the program, in case you have several. The sum of the entries carries back to the expense line. A supporting statement that lists the details in the F10 menu will be included in the printed copy of the return.

Prior Year Unallowed Loss - Enter previous year unallowed loss in the Expenses menu. Check out Publication 925 - Passive Activity & At-Risk Rules and Form 8582 - Passive Activity Loss Limitations for more information.

Depreciation Expenses - To recognize the expenses, all capital assets related to the rental property are depreciated. It is possible to depreciate a residential dwelling together with any of the fixtures within it if you rent a residential rental home. The underlying value of the land related to the real property is not to be expensed and ought to be entered separately in the depreciation module for it to be accounted for if the property is later disposed of or sold. To enter an asset to be depreciated:

Go to the Expenses Menu
From the menu, select Depreciation Module
Select New or double click on the entry you would like to Edit. In case you used the tax program in the preparation of the previous year return, select Pull to pull the data forward.
Enter the Depreciation Data
You will be led to the Depreciation Data Entry Screen
Type a description of the asset, date placed in service, cost and business percentage. Section 179 Deduction can also be entered if applicable and the taxpayer takes this deduction for noon real estate assets.
Enter any accumulated depreciation if at all there are any then choose the depreciation method. Use MACRS 27.5 Years for residential rental property.
Select OK after entering the above information.
The next page will compute the depreciation expense.

You will alo be able to selet Mid Quarter, Listed Property and Disposition from the menu. In the event that the property gets sold, select Disposition, then answer YES to being disposed of, key in the disposition date, then indicate whether the asset is to be carried to Form 4797. In case you carry the amount to Form 4797, enter the Sale Price to Carry to Form 4797, then choose the place to carry the asset, Part I, Part II, Patrt III. Check out Publication 946 for more information on Depreciation.

Note: This is not tax advice. It is a guide on how to enter Rental Real Estate on Schedule E in the Taxx Savage Pro program.

Additional Resources:

Publication 527, Residential Rental Property

Publication 535, Business Expense

Publication 946, How to Depreciate Property