What the Form 1040 Is For
IRS Schedule E Form 1040 (2017) is used to report supplemental income and loss from rental real estate, royalties, partnerships, S corporations, estates, and trusts. This form helps taxpayers include additional income sources beyond regular wages when filing their individual income tax return.
Anyone who earns rental income, farm income, or business income that is not considered self-employment tax must complete Schedule E as part of their annual income tax return. The federal government uses this information to determine your total taxable income, federal income tax, and tax liability for the 2017 tax year.
When You’d Use IRS Schedule E Form 1040 2017
Taxpayers use Schedule E to report income from rental properties or pass-through entities where they do not actively manage daily operations. This form also applies if you receive residual interests, royalties, or other supplemental income, such as from estates or trusts.
Individuals who are self-employed or have household workers may also need to file related tax forms for self-employment tax or household employment taxes, depending on their situation. If you missed your 2017 filing deadline or need to amend your return, you must use paper forms and submit an updated personal income tax return using Form 1040-X along with the corrected Schedule E.
Key Rules or Details for 2017
- Passive activity loss limits: The Internal Revenue Code restricts deductions for rental real estate losses unless you actively participated. Taxpayers with income below $100,000 could deduct up to $25,000 in losses against other income.
- At-risk and basis limits: You can only deduct losses up to the amount you have at risk in the activity, such as invested funds or personally guaranteed loans. This ensures that deductions do not exceed your actual financial exposure.
- Personal use of property: If you used your rental property personally for more than 14 days or 10 percent of the rental days, you must divide expenses between personal and rental use before reporting income.
- Depreciation requirement: For 2017, residential rental properties were depreciated over 27.5 years. Depreciation reduces taxable income by accounting for the wear and tear of assets over time.
- Standard mileage and expenses: The mileage rate for 2017 was 53.5 cents per mile. Keep clear records of travel related to your rental property to justify expense reimbursements.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Your Documents
Collect income records such as rent received, royalty statements, and Schedule K-1 forms from partnerships or S corporations. Include expense receipts, property tax bills, and mortgage interest statements.
Step 2: Complete Property Information
Enter each rental property’s address, type, and number of days rented at fair market value. This determines whether personal use limitations apply and helps calculate allowable deductions.
Step 3: Report Income
Include all rental income, royalties, or pass-through income you must report under federal income taxes. If you received property or services instead of cash, report the fair market value as taxable income.
Step 4: Enter Expenses
List deductible expenses such as insurance, repairs, utilities, property taxes, and management fees. Ensure that these expenses relate directly to your rental property and are not classified as personal expenses.
Step 5: Calculate Depreciation
Depreciation enables you to recover the costs of property over time. Use IRS tables to calculate annual depreciation for rental properties or farm income assets placed in service in 2017.
Step 6: Total Income or Loss
Subtract total expenses from total income to find your net result. Report any additional tax if your loss exceeds allowable limits under the passive activity or at-risk rules.
Step 7: Report Pass-Through Income
If you received Schedule K-1 forms, report partnership or S corporation income on the correct part of Schedule E. This ensures an accurate reflection of all supplemental income.
Step 8: Calculate Net Results
Add all gains or losses to determine your total supplemental income. Transfer this figure to your main tax return so it contributes to your overall taxable income and income tax withholding.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Mixing personal and rental expenses: Some taxpayers claim 100 percent of costs for properties they also use personally. Keep accurate records and allocate expenses based on rental versus personal days to stay compliant.
- Ignoring depreciation: Failing to claim depreciation can reduce long-term benefits and create complications when selling the property. Always claim annual depreciation as required under the Internal Revenue Code.
- Misclassifying Improvements: Treating property upgrades as repairs leads to errors in tax returns. Improvements must be capitalized and depreciated over a period of several years.
- Missing 1099 reporting: If you paid $600 or more to contractors or property managers, you must file Form 1099-MISC. This ensures compliance with federal income tax regulations.
- Forgetting additional forms: Independent contractors or nonresident aliens providing services related to your property may require additional forms. Review filing instructions carefully or consult a tax professional.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once your Schedule E is filed, the IRS reviews your submission electronically or by paper form, depending on how you filed. Electronic filing typically results in faster processing, while paper forms take several weeks. Refunds are issued via direct deposit or paper check, depending on your preference. If additional taxes are due, the IRS will send a notice with payment details. Returns involving rental properties or self-employment may be subject to closer review due to income verification procedures under federal tax laws. Always retain tax documents for at least three years for audit purposes.
FAQs
Do I need to file the IRS Schedule E Form 1040 for 2017 if I only rented out my home briefly?
If you rented your home for fewer than 15 days in 2017, you do not report that rental income. You cannot deduct related expenses, but you may still claim property taxes and mortgage interest as itemized deductions.
How do household employment taxes relate to supplemental income?
Household employment taxes apply to wages you pay to household workers. These wages are not supplemental income, but they must be reported if they exceed the IRS limits for the 2017 tax year.
Does rental income affect my federal income tax and income credit?
Yes, rental income adds to taxable income and can affect your eligibility for income credits. Reporting it correctly ensures accurate calculation of your total tax liability.
Can I file my 2017 Schedule E electronically?
No, electronic filing applies only to current tax years. For 2017, you must file a paper return and include any required additional forms.
What if I had unemployment compensation or regular wages in 2017?
Report unemployment compensation and regular wages separately from supplemental income. They appear on your main Form 1040 to ensure correct income tax withholding.
