What the Form Is For

Schedule E (Form 1040), officially titled "Supplemental Income and Loss," is the IRS form you use to report income or losses from what the tax code considers "supplemental" sources—meaning income that doesn't come from your regular job, wages, or traditional business operations. Specifically, Schedule E is designed for reporting income and expenses from:

• Rental real estate properties (houses, apartments, condos, vacation homes)
• Royalty income from oil, gas, mineral properties, copyrights, or patents
• Partnerships where you're a partner
• S corporations where you're a shareholder
• Estates and trusts where you're a beneficiary
• REMICs (Real Estate Mortgage Investment Conduits)

The form is divided into three main parts: Part I covers rental real estate and royalties, Part II handles partnerships and S corporations, and Part III deals with estates and trusts. You attach Schedule E to your Form 1040 and report the final profit or loss on your main tax return. For 2015, this form was essential for anyone earning passive income from these sources, as it determines both your taxable income and potential deductions.

IRS.gov

When You'd Use Schedule E (Late/Amended Filings)

For tax year 2015, Schedule E was originally due on April 18, 2016 (or October 17, 2016, if you filed an extension). If you missed that deadline or discovered errors after filing, you can still file a late or amended return.

Late Filing

If you never filed your 2015 return, you can still file it using the 2015 version of Schedule E. The IRS doesn't allow electronic filing for prior-year returns, so you'll need to mail a paper return. While there's no penalty for filing late if you're owed a refund, you'll face failure-to-file penalties (5% of unpaid taxes per month, up to 25%) if you owe money. However, you only have three years from the original due date to claim a refund—meaning the deadline to claim a 2015 refund was generally April 18, 2019.

Amended Filing

If you already filed your 2015 return but need to correct Schedule E information—such as rental expenses you forgot to deduct or incorrect partnership income—you file Form 1040X (Amended U.S. Individual Income Tax Return) with an updated Schedule E attached. The three-year rule applies here too: you must file within three years of your original filing date or two years after paying the tax, whichever is later.

IRS.gov

Key Rules for 2015

1. The 14-Day Personal Use Rule: If you rented out a vacation home or dwelling unit but used it personally for 14 days or less (or 10% of rental days, whichever is greater), you didn't have to report the rental income at all. However, if you used it more than that threshold, it's considered a "personal residence," and your rental expense deductions are limited.
2. Passive Activity Loss Limitations: Most rental real estate is considered a "passive activity," meaning you can only deduct losses up to the amount of your passive income—unless you qualify for exceptions. The most common exception allowed up to $25,000 in rental real estate losses if you "actively participated" in managing the property and your modified adjusted gross income (MAGI) was $100,000 or less. This allowance phased out completely at $150,000 MAGI.
3. Real Estate Professional Status: If more than half your working hours were spent in real property trades and you logged over 750 hours annually in real estate activities where you materially participated, your rental activities weren't considered passive—allowing full loss deductions.
4. At-Risk Rules: You could only deduct losses up to the amount you had "at risk" in the activity—generally, your cash investment plus loans for which you're personally liable.
5. Standard Mileage Rate: For 2015, the standard mileage rate for rental property-related driving was 57.5 cents per mile.
6. Net Investment Income Tax (NIIT): Higher-income individuals faced an additional 3.8% tax on net investment income, including rental income, if their MAGI exceeded certain thresholds ($250,000 for married filing jointly, $200,000 for single filers).

IRS.gov

Step-by-Step: How to Complete Schedule E (High Level)

Part I – Rental Real Estate and Royalties

• List each property with its address and assign a property type code (1-8, such as "2" for single-family residence)
• Report rental days and personal use days on line 2
• Enter rental income (line 3) and royalty income (line 4)
• Deduct expenses (lines 5-19): advertising, auto/travel, cleaning, insurance, legal fees, management fees, mortgage interest, repairs, supplies, taxes, utilities, depreciation, and other expenses
• Calculate net income or loss for each property (line 21)
• Apply passive loss limitations if applicable (line 22)
• Total all properties and transfer to Form 1040

Part II – Partnerships and S Corporations

• Enter information from Schedule K-1 forms you received
• Report your share of income or loss from each entity
• Check whether activities are passive or nonpassive
• Total the amounts (line 32)

Part III – Estates and Trusts

• Enter information from Schedule K-1 (Form 1041) received from estates or trusts
• Report your beneficiary share of income or loss
• Total the amounts (line 37)

Final Step

Combine totals from all three parts and report the net amount on Form 1040, line 17.

Common Mistakes and How to Avoid Them

1. Confusing Repairs with Improvements

Repairs (fixing a leaky faucet) are immediately deductible on line 14, while improvements (replacing an entire roof) must be depreciated over 27.5 years. Solution: When in doubt, ask: "Does this restore the property to its original condition (repair) or enhance its value (improvement)?"

2. Forgetting to Report All Rental Income

All rental payments count as income—even if tenants pay in services, property, or late. Security deposits are generally not income unless you keep them for damages. Solution: Track every payment received throughout the year.

3. Missing Depreciation Deductions

Many first-time landlords forget to depreciate their rental property, leaving thousands of dollars in legitimate deductions unclaimed. Worse, the IRS requires you to "recapture" depreciation when you sell—even if you never claimed it. Solution: Always calculate and claim depreciation on line 18.

4. Incorrectly Allocating Personal/Rental Use

If you used a vacation rental personally, you must split expenses proportionally. Solution: Use the formula: (Rental Days ÷ Total Days Used) × Expenses = Deductible Amount.

5. Not Understanding Passive Loss Rules

Many taxpayers incorrectly deduct rental losses exceeding the $25,000 limit or claim losses when their income is too high. Solution: Complete Form 8582 if your MAGI exceeds $100,000 or if you have any prior-year suspended losses.

6. Failing to Track Mileage

Driving to manage rental properties is deductible, but only if documented. Solution: Keep a mileage log with dates, destinations, and business purposes.

7. Mixing Up Schedule E and Schedule C

If you provide substantial services to renters (like daily housekeeping at a B&B), you're running a business—use Schedule C, not Schedule E. Solution: Rental of property with minimal services = Schedule E; rental with significant services = Schedule C.

What Happens After You File

After submitting Schedule E with your 2015 Form 1040, the IRS processes your return and:

1. Matches Information: The IRS cross-references Schedule K-1s from partnerships, S corporations, and trusts against what you reported. Mismatches trigger notices.
2. Calculates Your Tax: Rental income increases your adjusted gross income, while losses (subject to limitations) reduce it. This affects your overall tax bill and eligibility for certain credits.
3. Applies Passive Loss Limitations: Any disallowed passive losses are carried forward indefinitely on Form 8582 and can be used in future years when you have passive income or sell the property.
4. Assesses Additional Taxes: If applicable, the IRS calculates your Net Investment Income Tax (3.8% surtax) using Form 8960.
5. Issues Refunds or Bills: Depending on your total tax liability versus withholding/estimated payments, you'll receive a refund or owe additional tax.

Record Retention: Keep all supporting documents (receipts, K-1s, mileage logs, depreciation schedules) for at least three years after filing, as the IRS can audit returns within this window (six years for substantial underreporting).

FAQs

Q1: Do I need to report rental income if I only rented my property for a few weeks?

A: It depends. If you rented your home for 14 days or fewer, you don't report the income or deduct rental expenses (though you can still deduct mortgage interest and property taxes on Schedule A). If you rented it for 15+ days, you must report all rental income on Schedule E.

Q2: Can I deduct a loss on my rental property even though I have a regular job?

A: Possibly. If you "actively participated" in managing the rental (approved tenants, made management decisions) and your MAGI was $100,000 or less, you could deduct up to $25,000 in rental losses. Otherwise, passive loss rules limited your deduction to passive income only.

Q3: What if I received a Schedule K-1 but don't understand it?

A: Schedule K-1 forms report your share of income, deductions, and credits from partnerships, S corporations, or trusts. Transfer the amounts from specific boxes on the K-1 to the corresponding lines in Part II or III of Schedule E. The K-1 instructions explain which amounts go where.

Q4: Can I deduct expenses for a property I'm preparing to rent but haven't rented yet?

A: Generally no. Expenses incurred before a property is "available for rent" are considered start-up costs or must be added to the property's basis. Once the property is actively listed and available, you can begin deducting operating expenses.

Q5: What happens if I sell a rental property I've been depreciating?

A: You'll face "depreciation recapture" on the depreciation you claimed (or should have claimed), taxed as ordinary income at a maximum 25% rate. The remaining gain is typically taxed at long-term capital gains rates. Report the sale on Form 4797 and Schedule D.

Q6: I forgot to file Schedule E with my 2015 return. What should I do?

A: File an amended return (Form 1040X) with Schedule E attached. As of October 2025, you're well past the three-year deadline to claim refunds for 2015, but you should still amend if you owe additional tax to minimize penalties and interest.

Q7: Do I need to complete Form 8582 for passive losses?

A: Not necessarily. If rental real estate is your only passive activity, you have no prior-year suspended losses, your loss is $25,000 or less, you actively participated, and your MAGI is $100,000 or less, you can skip Form 8582 and deduct the loss directly on Schedule E, line 22.