Schedule E 2020 Guide for Rental and Pass-Through Income

This adjustment affects adjusted gross income but does not change how Schedule E income or loss is calculated or reported.

Purpose and Scope of Schedule E

Schedule E reports income and losses from activities that pass through to you or arise from property ownership rather than direct business operations. These categories include rental real estate and royalty income, partnership and S corporation items reported on Schedule K-1, estate and trust income, and REMIC residual interests.

Although some Schedule E items are often described as investments, Schedule E does not report portfolio income such as interest or dividends, which belong on Schedule B. Each part of

Schedule E applies to a specific activity type, and accurate placement of income and expenses is required to ensure proper treatment under the tax rules.

Ten-Step Filing Checklist

1. Step 1: Gather Required 2020 Documents

   Collect all records needed to complete Schedule E accurately for the 2020 tax year. These records support the amounts entered on the form and align with the Schedule E instructions.

   Collect all records needed to complete Schedule E accurately for the 2020 tax year. These documents support the amounts reported on the form and follow the Schedule E instructions.

   You should gather Schedule K-1 forms from any partnerships, S corporations, estates, trusts, or

   REMICs. If applicable, each property should also include Forms 1099-MISC or 1099-NEC that report royalty income.

   For rental properties, keep copies of rental agreements, rent summaries, and detailed expense records. Each property should also include mortgage interest statements, property tax records, insurance bills, and utility statements.

   If depreciation applies, include depreciation schedules and any prior-year carryforward information to ensure accurate reporting.

2. Step 2: Complete Schedule E Part I for Rentals and Royalties

   Complete Schedule E Part I for rental real estate properties and royalty income. Each rental property is listed on a separate line, while royalty income is recorded in the same section with a different income classification.

   For each rental real estate property, enter the physical address and report fair rental days and personal use days on line 2. Royalty entries use the designated royalty income line and do not require rental days or a property address.

3. Step 3: Report Rental and Royalty Income and Expenses

   Enter rental and royalty income, along with related expenses, in Schedule E Part I using the correct line numbers. Proper line placement helps ensure the net income or loss is calculated correctly. Report rental income on line 3 and royalty income on line 4.

   List allowable expenses on lines 5 through 19, including advertising, insurance, interest, repairs, taxes, utilities, and depreciation. Total all expenses on line 20, then calculate the net income or loss on line 21. If applicable, address deductible rental loss limitations on line 22.

4. Step 4: Complete Schedule E Part II for Partnerships and S Corporations

   Use Schedule E Part II to report income, losses, and other items from partnerships and S corporations. All amounts entered in this section are directly from the entities' Schedule K-1s.

   Enter each entity’s name and employer identification number as shown on the Schedule K-1.

   Report ordinary income or loss and other applicable amounts exactly as instructed, without combining separate entities into a single entry.

5. Step 5: Complete Schedule E Part III for Estates and Trusts

   Report income or loss from estates and trusts in Schedule E Part III. This part applies when you receive a Schedule K-1 from an estate or trust that passes income or deductions through to you.

   Enter the estate or trust name and identifying number, then report the income or loss amounts

   according to the Schedule K-1 instructions. Each estate or trust is listed separately to maintain transparent reporting.

6. Step 6: Complete Schedule E Part IV for REMIC Residual Interests

   Use Schedule E Part IV if you hold a residual interest in a conduit for real estate mortgage investments. REMIC income is reported separately from other Schedule E activities. Enter the

   REMIC name and identifying information, then report taxable income or loss as shown on the

   REMIC Schedule Q or related statement. These amounts flow into the Schedule E total through the form’s summary process.

7. Step 7: Apply Passive Activity Loss Rules Where Required

   Passive activity loss rules may limit the amount of loss you can deduct in the current year.

   These rules apply to many rental activities and to interests in partnerships and S corporations.

   The special allowance for rental real estate losses depends on several conditions, including active participation, filing status, and modified adjusted gross income phaseout ranges. When required, Form 8582 is used to compute allowed losses, and disallowed losses are carried forward in your records.

8. Step 8: Combine Schedule E Totals and Transfer to Form 1040

   After completing all applicable parts of Schedule E, combine the results using the form’s summary lines. Schedule E, line 41, combines totals from multiple parts, including rentals, pass-through entities, estates, trusts, and REMICs. Transfer the amount from Schedule E line

   41 to Schedule 1 (Form 1040) line 5, following the Schedule 1 instructions. This amount then flows into adjusted gross income on your primary return.

9. Step 9: Review Signatures and Filing Information

   Sign and date Form 1040 or the applicable main return form after completing all schedules.

   Schedule E itself is not signed separately. If filing a joint return, both spouses must sign and date it. When a paid preparer completes the return, verify that the preparer section is completed in accordance with the form instructions.

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10. Step 10: Assemble and File the Return Correctly

    Assemble the return using only the forms and schedules. The filing order generally places Form

    1040 first, followed by Schedule 1 if required, and then Schedule E.

    Schedules K-1 and supporting documentation are generally kept for your records and not attached to the return unless specific instructions require otherwise. Mail or electronically file the return according to the 2020 Form 1040 filing instructions.

    Form-Specific Limitations and Filing Status

    Considerations

    Residency status affects which main return form you file and how income is taxed. Nonresident aliens generally file Form 1040-NR unless an exception or election applies, and Schedule E may be attached when appropriate.

    Schedule E applies only to the categories listed on the form. Sole proprietorship business income is generally reported on Schedule C, and farm income is usually reported on Schedule

    F, even when those activities feel similar to rental or pass-through income.

    Significant 2020 Clarifications Affecting Schedule E

    For 2020, Schedule E reporting remains divided across distinct parts rather than consolidated sections. Partnerships and S corporations are reported in Part II, estates and trusts are reported in Part III, and REMIC residual interests are reported in Part IV.

    Passive activity loss rules continue to apply, and the Schedule E instructions direct taxpayers to

    Form 8582 and related guidance for calculating allowable losses. Schedule E itself does not require special notations for suspended losses, but accurate tracking remains necessary for future years.

    If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.