If you own rental property, Schedule E is the IRS form that determines how much tax you owe — or how much you save. It’s also the form most landlords get wrong.
The mistakes aren’t dramatic. They’re small: a missing late fee here, a repair misclassified as an improvement there, a mortgage payment entered as one lump sum instead of split into principal, interest, and escrow. But those small mistakes compound. They cost you deductions, inflate your taxable income, and in the worst case, trigger an audit.
This guide walks through every line of Schedule E Part I so you know exactly what goes where, what most landlords miss, and what changed for the 2025 tax year.
What Is Schedule E and Who Needs to File It?
Schedule E (Supplemental Income and Loss) is the IRS form where you report income and expenses from rental real estate. If you collected rent on a property you own — whether it’s a single-family home, a duplex, or a condo managed by a property manager — you need to file Schedule E with your Form 1040.
This applies whether your property is in your name or held in an LLC taxed as a disregarded entity (which most single-member LLCs are). If you have multiple properties, you report each one separately on Schedule E. The form supports up to three properties per page, with additional pages as needed.
Lines 1–2: Property Information
Line 1 asks for each property’s street address and a property type code. For most landlords, you’ll use code 2 (Single Family Residence) or 8 (Other) for duplexes or condos.
Line 2 asks how many days the property was rented at fair market value and how many days you used it personally. This matters because if personal use exceeds 14 days or 10% of rental days, the IRS reclassifies deductions. For dedicated rental properties with a property manager, your personal use days are typically zero.
Line 3: Rental Income — It’s More Than Just Rent
This is where most landlords leave money on the table by doing the opposite: they forget to report non-rent income, which ironically can help them avoid IRS scrutiny. Line 3 captures all rental income received, including:
- Monthly rent payments
- Late fees collected
- Pet fees and pet deposits kept
- Application fees
- Lease termination fees
- Security deposits you did not return to the tenant
- Section 8 HAP (Housing Assistance Payment) payments from the housing authority
The key word is “received.” If a tenant owes $1,200 in rent but you only collected $800, you report $800. If you received HAP payments directly from the local housing authority, that amount goes on Line 3 alongside the tenant’s portion.
A common mistake for Section 8 landlords: forgetting to include the HAP payment as income. It’s still income, even though it comes from the government rather than the tenant.
Lines 5–19: Expense Deductions (Where You Save Money)
This is the heart of Schedule E. Every dollar you accurately report here reduces your taxable rental income. Here’s what each line covers and what landlords most commonly miss.
Line 5: Advertising
Costs to find tenants — Zillow listings, Apartments.com subscriptions, yard signs, Craigslist upgrades. If your PM handles advertising and rolls it into their fee, don’t double-count it here.
Line 6: Auto and Travel
The IRS mileage rate for 2025 is $0.70 per mile, up from $0.675 in 2024. This covers trips to check on your property, meet contractors, visit the hardware store for supplies, or drive to your PM’s office. If you’re an out-of-state landlord, flights and hotels for property visits count too — keep receipts.
Line 7: Cleaning and Maintenance
Routine upkeep: lawn care, pest control, snow removal, janitorial services between tenants, HVAC filter replacements. This does not include repairs (that’s Line 14) or improvements (those get depreciated, not expensed).
Line 8: Commissions
Amounts paid to agents or brokers for securing tenants. If your PM charges a leasing fee separate from their monthly management fee, it goes here.
Line 9: Insurance
Landlord hazard insurance, liability insurance, flood insurance, umbrella policies, and any required Section 8 insurance. This is the annual premium, not the escrow payment. If your insurance is escrowed into your mortgage, you still report the actual premium amount — not the monthly escrow withholding.
Line 10: Legal and Professional Fees
CPA fees, attorney fees for lease review or evictions, tax preparation costs attributable to the rental property, and bookkeeping services.
Line 11: Management Fees
What you pay your property manager. Industry standard is 8–12% of collected rent. If your PM charges a flat monthly fee, report the annual total. Review your PM’s year-end statement carefully — some fees (leasing fees, maintenance markups, inspection fees) may not be included in the management fee line and should be allocated elsewhere on Schedule E.
Line 12: Mortgage Interest
This is where most landlords make their biggest mistake. Your monthly mortgage payment includes principal, interest, insurance escrow, and tax escrow — but only the interest portion goes on Line 12. Not the full payment. Not the principal.
Your lender sends Form 1098 each January showing total interest paid for the year. Use that number. If you’re on a DSCR loan or a conventional loan, the 1098 is your source of truth.
For BRRR investors who refinanced mid-year: you may receive two 1098 forms (one from the original lender, one from the refinance lender). Report both.
Line 14: Repairs
Repairs restore something to its original condition. Replacing a broken window, patching a roof leak, fixing a garbage disposal, repainting a wall. These are fully deductible in the year paid.
The critical distinction: repairs are deductible immediately; improvements must be depreciated over 27.5 years. A new roof is an improvement. Patching a leak is a repair. A new HVAC system is an improvement. Fixing the existing HVAC is a repair. Getting this wrong is one of the most common audit triggers on Schedule E.
Line 16: Taxes
Property taxes, county and municipal taxes, and any local business or rental licensing fees. Do not include income taxes here. Like insurance, use the actual tax amount billed — not your escrow payment amount.
Line 17: Utilities
Any utilities you pay as the landlord: water, sewer, electric, gas, trash removal, internet (if you provide it). If the tenant pays utilities directly, nothing goes here.
Line 18: Depreciation
Residential rental property depreciates over 27.5 years using the straight-line method. You’ll calculate this on Form 4562 and carry the result to Line 18.
The depreciable basis is your purchase price (minus land value) plus closing costs and capital improvements. Land is never depreciated — only the building and its improvements.
For a property purchased for $150,000 where the land is valued at $30,000, your depreciable basis is $120,000. Annual depreciation: $120,000 / 27.5 = $4,364 per year.
2025 update: The bonus depreciation allowance has been restored to 100% for qualified property acquired after January 19, 2025. This primarily affects appliances, fixtures, and certain improvements — not the building itself. If you replaced all appliances during a rehab, you may be able to deduct the full cost in year one rather than depreciating over 5–7 years. Consult your CPA on whether a cost segregation study makes sense for your situation.
Line 19: Other Expenses
Anything that doesn’t fit Lines 5–18: HOA fees, home warranty costs, pest inspection fees, HQS inspection preparation costs (for Section 8 properties), key and lock changes, and bank fees on your rental property account. Itemize each one.
Lines 20–21: The Bottom Line
Line 20 totals your expenses. Line 21 subtracts Line 20 from Line 3 to give your net rental income or loss for each property.
If Line 21 is positive, that income flows to your Form 1040 and is taxed at your ordinary rate. If it’s negative, you have a rental loss — but whether you can deduct it depends on your income.
Passive Activity Loss Rules: When You Can’t Deduct a Loss
Rental real estate is generally classified as a passive activity. If your Schedule E shows a loss, the IRS limits how much you can deduct:
- If your modified adjusted gross income (MAGI) is under $100,000, you can deduct up to $25,000 in rental losses against your other income, provided you actively participate in managing the property (making decisions about tenants, approving repairs, etc.).
- Between $100,000 and $150,000 MAGI, the $25,000 allowance phases out by $1 for every $2 over $100,000.
- Above $150,000 MAGI, you generally can’t deduct passive rental losses against active income. The losses carry forward to future years.
The exception: qualifying as a real estate professional (750+ hours per year in real estate activities, and real estate is your primary occupation). That reclassifies rental income as non-passive, removing the loss limitation entirely.
Common Mistakes That Cost Landlords Money
Reporting the full mortgage payment on Line 12. Only interest goes there. Principal builds your equity — it’s not an expense. Insurance and tax escrow are reported on Lines 9 and 16 respectively.
Misclassifying repairs and improvements. New roof = depreciate over 27.5 years. Repair a leak = deduct this year. The difference in immediate tax savings can be thousands of dollars.
Forgetting non-rent income on Line 3. Late fees, application fees, and retained security deposits are all taxable income. Omitting them doesn’t save you — it creates a mismatch if the IRS cross-references 1099s or bank deposits.
Using escrow amounts instead of actual costs for insurance and taxes. Your escrow payment is an estimate. Use the actual amount billed by your insurer and your county tax authority.
Not reconciling PM statements. Your property manager’s year-end statement should align with what you report on Schedule E. Mismatches — a missing maintenance charge, a fee categorized incorrectly, a rent payment attributed to the wrong month — cascade into Schedule E errors. Check every line before filing.
From PM Statements to Schedule E in 60 Seconds
If you manage more than a couple of properties, the manual process of reconciling PM statements, splitting mortgage payments, and mapping every transaction to the right Schedule E line item can consume entire weekends.
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