What the IRS Schedule E Form 1040 (2015) Is For
IRS Schedule E Form 1040 (2015) is the IRS tax form used to report supplemental income or losses that do not come from wages, salaries, or typical business activities. Taxpayers file it as part of their individual income tax return to disclose rental real estate, royalties, partnerships, S corporations, estates, and trusts. The form helps determine taxable income and overall tax liability. Anyone earning rental income, self-employment income, or other supplemental income for tax year 2015 must include this schedule when completing their annual income tax return.
When You’d Use Form 1040
You use this form when you must report income or loss from activities that generate supplemental income, such as rental property or pass-through entities. The filing process for 2015 required submission by April 18, 2016, or October 17, 2016, if an extension was granted. Late filers can still file by mailing a paper return since prior-year electronic filing is unavailable.
Those amending a previous return must use Form 1040X. Filing ensures proper calculation of your total income, federal income tax, and refund eligibility. Late or amended returns also allow correction of errors that affect credits or deductions, such as the earned income credit or foreign tax credit.
Key Rules or Details for 2015
- Personal Use of Rental Property: Taxpayers who used a dwelling for personal purposes for 14 days or less, or 10% of rental days, were not required to report rental income for that property. This rule defined whether rental real estate was treated as a personal residence or a business property for federal income taxes.
- Passive Activity Loss Limitations: Rental real estate is often considered a passive activity. You could deduct up to $25,000 in losses if you actively participated and your adjusted gross income was less than $100,000. The allowance was phased out completely at $150,000.
- At-Risk and Passive Rules: Deductions were limited to amounts you were risking through an activity under the Internal Revenue Code. Excess losses were carried forward to future tax years.
- Additional Medicare Tax and NIIT: High earners paid an additional Medicare tax of 0.9% and a net investment income tax of 3.8% on passive income when total income exceeded federal thresholds.
- Depreciation and Deductions: Rental expenses, such as mortgage interest, legal fees, repairs, and property taxes, are deducted from taxable income. Depreciation was required for rental property and other business property to determine the adjusted cost basis.
- Supplemental Wages and Fringe Benefits: Income considered supplemental wages, such as bonuses or expense reimbursements, was subject to the supplemental tax rate for federal income tax withholding.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Part I – Rental Real Estate and Royalties
Report income and expenses for each rental property or royalty. Include rental income, gross income, and deductible items like insurance, taxes, and repairs. List each property’s address, type, and number of rental days.
Step 2: Part II – Partnerships and S Corporations
Enter income or loss from pass-through entities using Schedule K-1. These forms report your share of partnership or S corporation income, ordinary dividends, and other income to be added to your tax return.
Step 3: Part III – Estates and Trusts
Transfer amounts from Schedule K-1 (Form 1041) for estates or trusts. These entries represent your share of taxable income, deductions, and credits from those entities.
Step 4: Combine and Report Totals
Add all parts and transfer the result to the main tax return. The total flows into Form 1040, affecting your taxable income, capital gains, and eligibility for credits like the child tax credit or income tax credit.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Misclassifying Repairs and Improvements: Many filers claim improvements as repairs. Improvements must be depreciated under the Internal Revenue Code rather than deducted immediately. Keeping receipts helps determine the correct treatment.
- Omitting Rental Income: Failing to report income from rental real estate or farm income can trigger IRS notices. Maintain detailed records of all amounts paid by tenants during the tax year.
- Ignoring Depreciation Requirements: Failing to report depreciation on rental property can result in higher additional taxes when you sell the property later. Use IRS tables to calculate depreciation accurately.
- Mixing Personal and Rental Use: Expenses must be divided between personal and rental use when the owner occupies a property. Divide expenses based on the number of days used for rentals and total usage.
- Incorrect Passive Loss Claims: You must complete Form 8582 if your losses exceed limits. This form ensures that deductible amounts follow the passive activity rules.
- Incorrect Filing Status: Married filing separately and married filing jointly have different thresholds for credits, additional tax, and deductions. Choosing the wrong status can result in reduced refundable credits.
- Not Including Additional Forms: Supporting schedules, such as Schedule C or Schedule F, may be required for self-employment income, business income, or farm income. Review your tax documents carefully before submitting them.
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 filing Schedule E with Form 1040, the IRS matches data from your tax forms, such as K-1s and W-2s, to confirm reported amounts. They calculate your federal income taxes, apply refundable credits, and assess any additional tax or penalties owed. Your tax refund or payment due will reflect total income, deductions, and credits. The IRS may also evaluate foreign tax credit claims, self-employment tax, or household employment taxes if applicable. Keep all tax documents, receipts, and income records for at least three years to support your annual income tax return in case of review.
FAQs
How do household employment taxes relate to IRS Schedule E Form 1040 (2015)?
Household employment taxes apply when you pay household workers like nannies or caretakers. These taxes are reported separately from rental income on your individual income tax return.
How are federal income taxes affected by rental income on Form 1040?
Rental income increases your total income and can raise your federal income tax liability. Proper deductions for mortgage interest and legal fees help lower taxable income.
Do capital gains from selling rental property go on Schedule E Form 1040 (2015)?
Capital gains from selling rental property are generally reported on Schedule D, not Schedule E. However, depreciation recapture related to rental real estate is included in your tax filing.
Can I claim an income credit when reporting supplemental income?
Yes, you may qualify for the earned income credit if your earned income meets IRS limits. Supplemental income may affect your credit eligibility depending on total revenue and filing status.
What additional taxes could apply to rental or investment income?
You may owe the additional Medicare tax or the net investment income tax if your total income exceeds certain limits. These taxes apply to passive and self-employment income.
What earned income credit rules apply for Form 1040?
The earned income credit reduces the federal income taxes owed and may result in a refund. Eligibility depends on earned income, number of qualifying children, and filing status for the tax year.
What is considered additional income for tax purposes?
Additional income includes self-employment income, taxable fringe benefits, unemployment compensation, and other income reported on your federal tax return. These items increase taxable income under the Internal Revenue Code.
