What IRS Schedule E Form 1040 (2019) Is For
United States citizens use IRS Schedule E Form 1040 (2019) to report supplemental income from rental real estate, royalties, partnerships, S corporations, estates, and trusts. It helps the Internal Revenue Service determine your total income tax liability for the tax year. Taxpayers use this IRS tax form when they have additional income, such as from investments or rental properties, beyond their wages or self-employment income. The information reported here contributes to your federal income tax return and affects credits like the child tax credit or earned income credit.
When You’d Use Form 1040
You must file IRS Schedule E Form 1040 (2019) if you earned rental or royalty income, received income from partnerships, or had farm income or residual interests. It applies to both individuals filing alone and those married filing jointly. If you missed filing this schedule with your annual income tax return, you can still file late using an electronic filing on the IRS website. Those amending prior tax returns must submit Form 1040-X along with updated tax documents and any additional forms required by the Internal Revenue Service.
Key Rules or Details for 2019
- Passive activity losses: The IRS limits deductions for rental losses unless you actively participated in managing your property and met certain income tax limits.
- Special $25,000 allowance: Active participants with a modified adjusted gross income of less than $100,000 can deduct up to $25,000 of rental losses; this deduction phases out at $150,000.
- At-risk limitations: Taxpayers can only deduct losses equal to the amount actually at risk in the activity, including cash contributions or qualified loans.
- Mileage rate: The federal government set the standard mileage rate for 2019 at 58 cents per mile for reporting rental-related travel expenses.
- Real estate professional exception: If more than half your work hours were spent in real property trades and you worked over 750 hours, losses are not considered passive.
- Depreciation rules: Residential rental property is depreciated over 27.5 years, and depreciation must be claimed to avoid higher capital gains later.
- Health savings account impacts: Rental losses do not affect deductions for medical expenses or HSA contributions; however, they should still be included in total net income calculations.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Gather Your Tax Documents
Collect all tax forms, such as 1099-MISC for rental income, Form 1098 for mortgage interest, and receipts for deductible medical expenses, property taxes, and insurance. These records help accurately report income and determine your taxable income.
Step 2: Complete the Form Header
Enter your name, filing status, and details about any household employment taxes. Indicate whether you made payments requiring a 1099 and if you qualify as a real estate professional for federal tax purposes.
Step 3: Fill Out Part I for Rental Properties
List each property’s address and activity type. Report income from rents, royalties, or business income separately for each property. Deduct allowable expenses like insurance, maintenance, and taxes while maintaining accurate gross income totals.
Step 4: Apply Loss and Income Rules
Use IRS Form 8582 to calculate passive loss limitations and Form 6198 for at-risk amounts. Include additional income, such as capital gain distributions or ordinary dividends, when determining your total net earnings.
Step 5: Transfer Totals to Your Federal Income Tax Return
Add totals from Schedule E to Schedule 1 of Form 1040. This information is reflected in your main tax form, affecting taxable income, tax credits, and refund eligibility.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Combining personal and rental use: Always separate personal use days from rental use to ensure deductions align with Internal Revenue Service rules and avoid reduced tax credits.
- Deducting improvements as repairs: Capitalize major improvements instead of deducting them immediately to maintain compliance with income tax regulations.
- Overlooking depreciation: Depreciation is mandatory and impacts future capital gains, so always include it in your income tax return.
- Failing to file required 1099s: File Forms 1099-MISC for service providers paid over $600 to stay compliant with federal taxes and avoid penalties.
- Ignoring additional taxes or credits: Check for excess Social Security taxes, general business credit, or refundable credits to ensure accurate federal tax forms.
- Missing estimated tax payments: Make quarterly estimated taxes if you expect to owe self-employment taxes or additional taxes to prevent underpayment penalties.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file taxes, the Internal Revenue Service processes your return and verifies information from your tax schedules and supplemental income records. Electronic filing speeds this process, often leading to a faster tax refund. Keep all tax documents, including receipts and forms related to educator expenses or health savings accounts, for at least three years. If your income averaging or earned income credit changes later, you may need to amend your income tax return to correct any differences.
FAQs
Do I need to use the IRS Schedule E Form 1040 (2019) if I only rented out a property briefly?
Yes, you must file if rental activity lasted 15 days or more during the tax year. For periods of fewer than 15 days, rental income is not reported; however, household employment taxes and related expenses may still be applicable.
Can I claim an income tax credit on my return with supplemental income?
You can claim the earned income credit or child tax credit if you meet eligibility requirements. Your supplemental income from rental properties or business income does not automatically disqualify you.
How do I report additional taxes or excess Social Security taxes?
Include additional taxes, such as excess Social Security taxes or Medicare taxes, on Schedule 2 of Form 1040. These amounts affect your overall tax liability and net income for the federal tax year.
Which federal tax forms should accompany Schedule E for additional income?
Attach any related federal tax forms, such as Schedule 1 for additional income, Schedule 2 for additional tax, and Schedule 3 for refundable or nonrefundable tax credits when filing your federal income tax return.
Can I use electronic filing for my Form 1040 U.S. return?
Yes, you can file taxes electronically using Free File Fillable Forms on the IRS website. Electronic filing ensures faster refunds and helps taxpayers avoid delays with mailed tax returns.
How does income averaging affect my federal taxes?
Income averaging allows certain taxpayers, such as those with farm income, to spread taxable income over three years. This may reduce overall income tax liability and improve eligibility for refundable credits.
What if I have capital gains or capital gain distributions?
Report all capital gains, distributions, and losses on Schedule D and include them in your total taxable income. Proper reporting ensures accuracy in your federal tax forms and avoids errors when calculating additional taxes.
