Schedule E for most landlords
If you rent out residential or commercial property without providing substantial services to tenants (maid service, meals, or other hotel-like amenities), report all activity on Schedule E (Form 1040), Part I. Each property gets its own column: line 3 records gross rents received; lines 5–18 capture individual expense categories (advertising, auto and travel, cleaning, commissions, insurance, legal/professional, management fees, mortgage interest, repairs, taxes, utilities, depreciation, and others); line 21 is the net income or loss. Up to three properties appear on one Schedule E; use additional Schedule E pages for more.
Depreciation is reported on Schedule E line 18 and flows from Form 4562 in the first year the property is placed in service. In subsequent years, the same annual depreciation amount continues.
How net rental income affects your Form 1040
Net Schedule E income (or loss) flows to Form 1040, line 5 (or the equivalent on the current year's form) and is included in adjusted gross income. Rental income (net positive) is taxed at ordinary income rates and may be subject to the 3.8% Net Investment Income Tax (NIIT) for high earners. Rental losses are passive and may be limited to $25,000 (active participation allowance) or fully suspended depending on your AGI.
If rental income puts you over certain thresholds — $200,000 single / $250,000 married — the NIIT applies to the rental income portion. If it pushes you past the passive loss phase-out, fewer losses become currently deductible.
When Schedule C applies instead
Short-term rentals where the average rental period is seven days or fewer are treated as a business activity, not a rental activity, under IRC 469. If you materially participate in that activity, losses are non-passive — but income is reported on Schedule C and is subject to self-employment tax (15.3% on the first $168,600, 2.9% above that for 2024 — check current thresholds at irs.gov). This is one of the few situations where rental income becomes subject to FICA-equivalent taxes.
Frequently asked questions
Which form do I use to report rental income?
Schedule E (Form 1040) for most landlords. Short-term rentals with substantial services may use Schedule C instead, which also subjects the income to self-employment tax.
Do I need to file Form 4562?
Yes, in the first year you place a rental property in service and in any year you place a new asset in service (including improvements). After the first year, the depreciation amount carries forward on Schedule E directly.
Does rental income count as earned income for IRA contribution purposes?
No. Rental income (Schedule E) is investment income, not earned income. It does not count toward the earned income required to make an IRA contribution.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.