Rental Property Owners: What Schedule E Needs From You

Rental real estate is one of the most common items on the individual returns David Tucker prepares, and one of the most under-documented. Owners usually know their rent and their mortgage payment. The rest of Schedule E, which is where the deductions live, takes a little organization. This guide covers what to gather, property by property, and pairs with the Rental Real Estate (Schedule E) worksheet on this site.

One column per property

Schedule E reports each rental property separately: its address, the type of property, how many days it was rented at fair market value and how many days you used it personally. If you own several properties, keep the records separate from the start. The worksheet has a column for up to six.

Income

• Rent received during the year, including any rent paid in advance for the following year.
• Security deposits you kept because a tenant left or damaged the property. Deposits you are holding and expect to return are not income.
• Fees charged to tenants: late fees, pet fees, application fees, laundry or parking income.
• Any 1099-MISC or 1099-K you received from a property manager or a short-term rental platform. The amounts should reconcile to your records.

Expenses, by category

The worksheet follows the Schedule E lines, so gathering records in the same order makes the return straightforward.

• Advertising: listing fees, signs, photography.
• Auto and travel: mileage to and from the property for management, repairs or showings, from a log, and travel to an out-of-town property.
• Cleaning and maintenance: turnover cleaning, lawn care, pest control, pool service.
• Commissions: leasing commissions paid to agents.
• Insurance: landlord policy premiums, and flood or umbrella coverage allocated to the property.
• Legal and professional fees: eviction costs, lease preparation, the portion of your tax preparation fee related to the rentals.
• Management fees: what you paid a property manager, usually shown on their year-end statement.
• Mortgage interest: from Form 1098. Only the interest, not the principal.
• Other interest: on a loan used for the property that is not secured by it, such as a line of credit used for a renovation.
• Repairs: fixing something that broke, repainting, patching a roof, replacing a broken appliance part.
• Supplies: light bulbs, filters, locks, small tools kept for the property.
• Taxes: property taxes from the county statement, and any rental-related local taxes.
• Utilities: any you paid rather than the tenant, including during vacancies.
• Other: HOA dues, bank fees on the rental account, software, bookkeeping.

Repairs versus improvements

This is the distinction that matters most and that owners most often get wrong. A repair keeps the property in its ordinary operating condition and is deducted in the year paid. An improvement adds value, extends the property's life or adapts it to a new use, and is generally depreciated over years instead of deducted at once. A new roof, a kitchen remodel, a new HVAC system, an added room: these are improvements. Keep improvement invoices separate and send them with the date placed in service. There are elections that allow some smaller improvements to be expensed, and David applies them where they fit.

Depreciation and the closing statement

The building (not the land) is depreciated over its recovery period, and that deduction usually rivals mortgage interest in size. To set it up correctly David needs the closing statement from when you bought the property, the purchase price split between land and building (the county appraisal is a common starting point) and the cost of improvements made before and after it was placed in service. If you sold a property this year, the closing statement from the sale is needed too. The worksheet includes a note about closing statements for exactly this reason.

Personal use and short-term rentals

If you or your family used the property for personal purposes during the year, or if it is a vacation home rented part of the year, the number of personal-use days changes how expenses are allocated and whether a loss is allowed. Short-term rentals with substantial services or very short average stays can be treated differently again. Count the days and tell David; the worksheet asks for both fair rental days and personal use days.

Losses and your other income

Rental losses are generally passive, and whether you can deduct them against wages or business income depends on your overall income and how actively you participate. This is a planning conversation, not a form to fill in, and it is part of the review meeting.

Put it in the folder

Complete the Schedule E worksheet for each property, add the 1098s, property tax statements, property manager summaries, improvement invoices and any closing statements, and upload them to your Dropbox folder. If you are not yet a client, start with a free consultation; rental property is a regular part of the practice.

This article is general information, not advice for your situation. Tax rules change; talk to a CPA before acting.