Chapter 15: Rental Real Estate, Royalties, Partnerships, etc.

In this chapter of free tax course, you will learn about rental real estate, rental income, rental expenses as well as deduction limits based on property use, personal use of a vacation home or dwelling unit, limits on rental losses and how to report rental income and expenses. You will be more familiar with Schedule E tax filing.

What is rental real estate?

Rental real estate may be residential property or nonresidential property. Generally, the net income or loss from the rental of such property is reported on Form 1040, line 17.

Net income (and losses) you receive from royalties (payments you receive for natural resources rights or use of intellectual property), from a partnership, or as a shareholder in an S corporation and certain other income and losses are also reported on line 17 of Form 1040.

How and when to use Schedule E of form 1040?

Generally, use Form 1040 Schedule E, Supplemental Income and Loss, to figure your net income or loss from these types of activities.

Do no use Schedule E to report rental income from the rental of personal property such as equipment or vehicles.

If you are in the business of renting such personal property, use Form 1040, Schedule C, Profit or Loss from business. If you are not in the business of renting personal property, report your income on line 21 of Form 1040 and your expenses as an adjustment on line 36 of Form 1040. Some types of royalty income are also reported on Schedule C.

Rental Real Estate

Rental Income

Repairs and Improvements

Examples of Improvements

Other Expenses

Depreciation

MACRS Recovery Periods

Special Depreciation Allowance

Deduction Limits Based on Property Use

Use as a Home

Dividing Rental and Personal Expenses

Figuring Net Income and Loss

Limit on Rental Losses

Reporting Rental Income and Expenses

Other Schedule E Income

Partnership and S Corporations

Schedule K-1