Schedule E instructions: rentals, royalties and K-1 income
Schedule E (Form 1040) is the IRS form individuals use to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts and REMICs. Part I covers rentals and royalties held directly, and Part II takes K-1 amounts in passive and nonpassive columns.
“Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits (REMICs).” IRS, About Schedule E (Form 1040)
What goes in Schedule E Part I versus Part II?
Schedule E, Part I, is for rental real estate and royalties the taxpayer holds directly, and Part II is for the taxpayer's share of partnership and S corporation income or loss from Schedule K-1. According to the 2025 Instructions for Schedule E (Form 1040), Part I reports income and expenses property by property in columns A to C, with fair rental and personal-use days on line 2 and the property type code on line 1b.
Some rentals and royalties belong elsewhere under the same instructions:
- Rentals where significant services are provided to the renter, such as maid service, go on Schedule C
- Rentals of real estate held for sale by a real estate dealer go on Schedule C
- Royalties of a self-employed writer, inventor or artist go on Schedule C
- Crop-share or livestock-share farm rent without material participation goes on Form 4835
Part II covers each partnership and S corporation on line 28, split into passive and nonpassive columns. Part III does the same for estates and trusts, and Part IV for REMIC residual interests. Line 41 in Part V combines lines 26, 32, 37, 39 and 40 and goes to Schedule 1 (Form 1040), line 5. Do not attach the K-1s; the instructions say to keep them for your records.
Where does each document go on Schedule E?
Each Schedule E line pulls from a specific document, and the Part II columns depend on whether the K-1 activity is passive to the taxpayer. The map below follows the 2025 Schedule E line captions, the Instructions for Schedule E, and the 2025 Partner's and Shareholder's Instructions for Schedule K-1.
| Source document | Amount | Schedule E line or column |
|---|---|---|
| Rent ledger, leases, Form 1099-MISC box 1 | Rents received | Part I, 3 |
| Form 1099-MISC, box 2 | Royalties received | Part I, 4 |
| Insurance declarations page | Insurance premium | Part I, 9 |
| Property manager statement | Management fees | Part I, 11 |
| Form 1098, box 1 (bank or other financial institution) | Mortgage interest | Part I, 12 |
| Lender with no Form 1098, or a shared loan reported to someone else | Mortgage interest | Part I, 13 |
| Repair invoices | Repairs that keep the property in operating condition | Part I, 14 |
| Property tax bill | Real estate taxes | Part I, 16 |
| Depreciation schedule, Form 4562 | Depreciation, never on land | Part I, 18 |
| K-1, box 1, material participation | Ordinary income (loss) | Line 28, column (k) or (i) |
| K-1, box 1, no material participation | Ordinary income (loss) | Line 28, column (h), or (g) after Form 8582 |
| K-1, boxes 2 and 3 | Rental income (loss), passive unless real estate professional | Line 28, column (h), or (g) after Form 8582 |
| K-1 (1065), boxes 4a and 4b | Guaranteed payments | Line 28, column (k) |
| K-1 (1065) box 12, K-1 (1120-S) box 11 | Section 179, through Form 4562, line 12 | Line 28, column (j) if nonpassive |
Each related K-1 item that belongs on Schedule E goes on its own line 28 row below the ordinary income row, with a description such as depletion in column (a), according to the line 28 instructions. In Part I, line 22 holds the rental real estate loss allowed after Form 8582, and lines 23a through 23e total rents, royalties, mortgage interest, depreciation and expenses across all properties, even when several Schedules E are attached.
How do K-1 amounts flow into the Part II columns?
Schedule K-1 amounts flow into Schedule E line 28 by character: columns (g) and (h) are passive, and columns (i), (j) and (k) are nonpassive. The 2025 Instructions for Schedule E apply basis, at-risk and passive loss rules, in that order, before any loss reaches a column.
Column (g) is the passive loss allowed after Form 8582, or the full loss if the taxpayer meets the rental real estate exception. Column (h) is passive income. Column (i) is a nonpassive loss, including the allowed loss from Form 6198. Column (j) is section 179 from Form 4562, and column (k) is nonpassive income.
Under line 27, prior-year losses now allowed under the basis or at-risk rules go on a separate row in column (i) marked PYA, and prior-year passive losses not reported on Form 8582 go on a separate row in column (g). For an S corporation, check column (e) and attach Form 7203 if the shareholder reports a loss, receives a distribution, disposes of stock or is repaid a loan.
What does a Schedule E calculation look like?
For example, a married couple filing jointly in 2025 owns one rental house and holds two K-1s. The house rent ledger shows $24,000, and the expenses are insurance $1,200, Form 1098 interest $7,000, property tax $3,000, repairs $800 and depreciation $6,000. They materially participate in a partnership whose K-1 shows a $9,000 box 1 loss and $3,000 of section 179 in box 12, both allowed after basis and at-risk tests. A passive S corporation K-1 shows $5,000 of box 1 income, and neither entity made a distribution.
| Step | Schedule E line | Amount |
|---|---|---|
| Rents received | Part I, 3 | $24,000 |
| Total expenses, lines 9, 12, 14, 16 and 18 | 20 | $18,000 |
| Rental income | 21 and 26 | $6,000 |
| S corporation box 1, passive income | 28 column (h) | $5,000 |
| Partnership box 1, nonpassive loss | 28 column (i) | ($9,000) |
| Partnership section 179 via Form 4562 | 28 column (j) | ($3,000) |
| Add columns (h) and (k) | 30 | $5,000 |
| Add columns (g), (i) and (j) | 31 | ($12,000) |
| Total partnership and S corporation | 32 | ($7,000) |
| Total to Schedule 1, line 5 | 41 | ($1,000) |
No passive activity has a loss, so nothing in column (g) needs a Form 8582 allocation. The partnership loss still goes to Form 461 for the excess business loss test, but that limit is figured off Schedule E.
What do reviewers check on Schedule E?
A reviewer checking Schedule E confirms six items, each tied to the 2025 Instructions for Schedule E. The prior-year Schedule E and Forms 8582, 6198 and 7203 come first, because suspended losses and carryforwards decide what can appear on line 22 and in columns (g) and (i).
The K-1 itself is the other half of the review. Each box should land in the column its K-1 instructions name, as laid out on the Schedule K-1 (Form 1065) page, and every amount reported on the K-1 should appear somewhere on the return. Page 2 of the form itself warns that the IRS compares the return with the K-1s it receives. On the Part I side, ask for the property manager's year-end statement when line 11 or line 14 looks high against the rent ledger.
Every line checked against the documents the client sent
Filed reads the client's rent ledgers, Forms 1099-MISC and 1098, property tax bills and K-1s, then checks every line of Schedule E against them. Anything that doesn't tie comes back as a review item with a citation to the source.
Book a demoLine 28, row B, shows a $12,400 loss in column (i), but the client's 2025 organizer reports 40 hours in the partnership's business. Confirm material participation, or move the loss to column (g) through Form 8582.
Common questions
Do I need Form 8582 for a rental loss on Schedule E?
A rental loss on Schedule E needs Form 8582 unless every exception condition is met. The Instructions for Form 8582 (2025) require active participation, no other passive activities, no prior-year unallowed losses or passive credits, a total loss of $25,000 or less, MAGI of $100,000 or less, and no limited partner interest, with lower amounts for married filing separately.
Where do guaranteed payments go on Schedule E?
Guaranteed payments from Schedule K-1 (Form 1065), boxes 4a and 4b, generally go in column (k) of Schedule E, line 28, as nonpassive income, according to the Partner's Instructions for Schedule K-1 (Form 1065) (2025). Those instructions treat box 4a amounts, such as payments for personal services, as generally not passive income.
How many rental properties fit on one Schedule E?
One Schedule E holds three rental or royalty properties in Part I, columns A to C. For more properties, the instructions say to attach as many Schedules E as needed but fill in lines 23a through 26 on only one, showing combined totals for all properties. Parts II and III then go on that same Schedule E.