Tax Year 2012
|Income and Loss from Rents and Royalties
This worksheet is used to report income the taxpayer received directly from rental real estate activities and royalties. Income received for the rental of personal property that is used in conjunction with real property is also entered on this worksheet. Amounts received from partnerships and S-corporations will be automatically entered when the taxpayer uses the appropriate Schedule K-1 worksheet (see below).
The taxpayer should complete a separate Schedule E worksheet for each rental real estate or royalty activity, unless he or she has made an election as a Real Estate Professional.
The taxpayer may need to use a different worksheet to report their business income and expenses, as follows:
- Form 4835 - If the taxpayer leased a farm to another party and received a share of the crops and/or livestock as rental income instead of a flat fee, use this worksheet to report rental income and expenses instead of the Schedule E worksheet.
- Schedule C - If either of these situations apply:
- If the taxpayer is in the real estate business, use this worksheet instead of the Schedule E, however, if the taxpayer is renting property he or she is holding for speculation only, this income and related expenses must be reported on the Schedule E.
- If the taxpayer provided significant services to the renter, such as maid services, use this worksheet instead of the Schedule E worksheet. Significant services do not include normal services related to the use of a building such as heating, lighting, and trash collection.
- If the taxpayer received rental income for personal property which was not used in conjunction with real property also rented, use this worksheet instead of the Schedule E worksheet.
- If the taxpayer received royalties as a self-employed writer, inventor, artist, or other creator, use this worksheet instead of the Schedule E worksheet.
- If the taxpayer received royalty income because he or she owns an operating interest in an oil or gas well, use this worksheet instead of the Schedule E worksheet.
- Schedule K-1 1065 or Schedule K-1 1120S - If the taxpayer received a Schedule K-1 as a partner or shareholder, use the appropriate worksheet, whichever is applicable, instead of the Schedule E worksheet.
- Husband and Wife Business - If the taxpayer and spouse owned a business together, see this article to determine which worksheet should be used.
Limited Liability Company
If the taxpayer is the member of an LLC, he or she must file as an individual person, a partner, or a corporation shareholder depending on the structure of the LLC, and the tax-treatment elections made by the LLC. Use the appropriate worksheet accordingly.
The following forms are automatically generated as required depending on the information entered on this worksheet and optional worksheets added from this worksheet:
For more information and details, see IRS Pub. 525, Taxable and Nontaxable Income, IRS Pub. 527, Residential Rental Property and the 2011 Instructions for Schedule E.
|Reporting Multiple Schedule E forms
Each rental and royalty activity in which the taxpayer is engaged must be reported on a separate Schedule E. After completing the first Schedule E worksheet, click "Add" next to "Schedule E - Supplemental Income and Loss from Rents and Royalties" from the Worksheets page to open a new Schedule E worksheet and add it to the return.
|Part I - Income or Loss From Rental Real Estate and Royalties
|Taxpayer or Spouse
||Rental or Royalty Activity Identification
Select whether this rental or royalty activity belongs to the taxpayer or spouse.
If the taxpayer and spouse share this rental or royalty activity, see Husband and Wife Business to determine which worksheet should be used, and how to enter information into this worksheet, if applicable.
Make an entry on these lines if the taxpayer is using this worksheet to report rental income. If the taxpayer is only reporting royalty income, go to "Other Information" below.
||Type of Property
Select the type of real estate property that produced the rental income, or select "Other" and enter a description.
Location of Property
Enter the street address, city, state and ZIP code of the rental property. If the property is located in a foreign country, include the city, province, state, and/or country, and postal code.
||Enter the number of days during the tax year the taxpayer rented the property, and the number of days during the tax year the taxpayer used the property for personal use.
Rules Applicable for Personal Use of Property
The taxpayer may not be able to deduct all the expenses for the rental portion of the property as follows:
- If the unit was rented for fewer than 15 days, the taxpayer does not report the rental income and cannot deduct any rental expenses.
- If the unit was used for personal purposes for at least 10 percent of the rental time, the taxpayer can deduct only the following amounts according to the percentage of rental use:
- Mortgage interest
- Real estate taxes
- Casualty losses
- Other rental expenses not related to the taxpayer's use of the unit as a home, such as advertising expenses and rental agent fees
If income is left after deducting these expenses, the taxpayer can deduct any other deductible expenses including depreciation, up to the amount of income. The taxpayer cannot carryover any amounts to the following year.
Personal Use Defined
This includes any day or part of the day that any of the following people use the property for personal use: the taxpayer, a different owner, any person who is not paying fair rental price, including family members or a person who is using it for personal purposes under an agreement that does not require fair rental price.
Personal use does not include days the taxpayer spends working substantially on repairs and maintenance, or days the taxpayer lived in the home before he or she began renting the home.
A house, apartment, condominium, or any other similar property.
|Qualified Joint Venture
Check the box if this is Schedule E is being filed for a qualified joint venture. See Husband and Wife Business for details.
||Select "Yes" if the taxpayer made payments that would require filing Form 1099.
The taxpayer may be required to file different Form 1099s for various reasons. The most normal circumstance is when the taxpayer makes a payment of at least $10 or more in Royalties or if the taxpayer makes a payment of at least $600 or more to an individual for any type of service for the business. See the 2011 Instructions for Form 1099-MISC, the 2011 Instructions for Form 1099-K, and the 2011 General Instructions for Certain Information Returns for details.
|All Required Form 1099s Filed
||Select "Yes" if the taxpayer answered "Yes" to the previous question and all required Form 1099s have been filed or will be filed.
|Investment All At Risk
||Investment in Activity All At Risk
Select "Yes" if the taxpayer meets the requirements which exempt the limitation of business losses from the At Risk rules.
Otherwise, select "No" to indicate that some of the investment in this property was not at risk.
See Form 6198 for the details and requirements to meet these tests of exemption from the at risk rules.
Note: Form 6198 will be automatically added to this return if applicable.
|Prior Year Basis from Form 6198
||Enter the taxpayer's prior year basis in this rental or royalty activity, which can be found on Line 10b of the previous year's Form 6198, if applicable.
|Prior Year Gain or Loss
||Enter the prior year gain or loss for this rental or royalty activity, which can be found on Line 5 of the previous year's Form 6198, if applicable.
||This amount is the taxpayer's adjusted basis in this business activity on the first day of the tax year, and will be automatically calculated. It is here for informational purposes only.
|Prior Year Unallowed Loss
||Enter the prior year loss for this activity from Worksheet 5, column (c) of the previous year's Form 8582, if applicable.
||Select "Yes" if the taxpayer meets the requirements of active participation as described below. Otherwise, select "No".
Do not select "Yes" if the taxpayer is using this worksheet to report royalty income.
The taxpayer and spouse must have owned at least 10% of the rental property during the entire tax year and made management decisions in a significant and bona fide sense. Management decisions that may count as active participation include:
- Approving new tenants,
- Deciding on rental terms,
- Arranging repairs and maintenance,
- Approving capital or repair expenditures, and
- Other similar decisions.
Note: The requirements for active participation are less stringent than the requirements for material participation.
If the taxpayer marks "Yes", the taxpayer will be eligible to deduct up to $25,000 in passive loss from non-passive income, adjusted by the taxpayer's Modified Adjusted Gross Income.
For more details and information, see Form 8582.
Note: Form 8582 will be automatically added to this return if applicable.
|Property or Interest Sold
||Check the box if this property or the taxpayer's interest in the property or other investment was sold during the tax year.
|Real Estate Professional
||Select "Yes" if the taxpayer or spouse qualifies as a Real Estate Professional. Otherwise, select "No".
See Real Estate Professional for details on the requirements.
Select "Yes" if the user wants the information entered on this federal Schedule E worksheet incorporated into the taxpayer's resident state return. Otherwise, select "No".
||Total Rents and Royalties Received
Enter the rental income or royalties received during the tax year for this real estate activity.
If the taxpayer is a Real Estate Professional and elected to treat all real estate activities as one activity, enter all rents received.
Royalty income the taxpayer received from this activity, includes the following:
Oil, gas, or mineral properties (not including operating interests), including gross amount received even if state or local taxes were withheld from the payments. These amounts will be entered on line 16-Taxes paid.
This information can be found on Form 1099-MISC if the taxpayer earned $10 or more from the activity.
The taxpayer may be able to treat amounts received as “royalties” for the transfer of a patent or amounts received on the disposal of coal and iron ore as the sale of a capital asset. For more information and details, see IRS Pub. 544, Sales and Other Dispositions of Assets.
|Expenses and Prorating
This section is for reporting expenses associated with the income of the rent or royalties reported above.
Directions for Prorating
If the taxpayer used the property for personal use, then the amount of certain expenses must be prorated according to the amount of personal use. For any expense items paid during the tax year that are partly attributable to the personal use of the property, check the Prorate Expenses box off to the right of the amount. The deductible amount of expenses will be automatically calculated based on the number of days of rental use vs. personal use entered above.
Enter the amount paid for advertising during the tax year for this rental or royalty activity.
||Auto and Travel Expenses
Enter the taxpayer's vehicle actual expenses or mileage deduction associated with this rental or royalty activity. Additionally enter any other travel expenses, along with 50% of meal expenses. See Meal Expenses for details on what meals are deductible.
These include the rental or royalty activity portion of the expenses paid for the taxpayer's vehicle(s) for gasoline, oil, repairs, insurance, tires, license plates, and any other ordinary and necessary operating expenses of the vehicle.
The cost of the vehicle can be depreciated by adding the vehicle as an asset under "Depreciation" below.
Standard Mileage Rate for 2012
The standard mileage rate is 55.5 cents per business mile driven during the 2012 tax year.
Add to this amount any parking fees or tolls only. The taxpayer must meet the eligibility requirements to take the standard mileage deduction as follows:
- The taxpayer must have owned the vehicle and used the standard mileage rate the first year the vehicle was placed in service, or the taxpayer must have leased the vehicle and used the standard mileage rate for the entire lease period (except for periods before 1998).
- The taxpayer cannot take a deduction for any depreciation, rent, or lease expenses paid on the vehicle.
- The taxpayer cannot have used the vehicle as a vehicle for hire.
- The taxpayer cannot have used 5 or more vehicles simultaneously in the rental or royalty activity.
||Cleaning & Maintenance
Enter the amount the taxpayer paid for cleaning and maintenance of buildings, and other equipment used in this rental or royalty activity.
Do not deduct amounts for maintenance that add value to the property or appreciably prolong the property's life. These costs must be depreciated over time-See "Depreciation" below.
Enter the amount the taxpayer paid for commissions for this rental or royalty activity.
Enter the amount paid for insurance for this rental or royalty activity.
Do not include amounts paid for a policy that insures the taxpayer against losses of earnings due to sickness or disability, or amounts credited to a reserve for self-insurance. These amounts are not deductible.
||Legal & Professional Fees
Enter fees charged by accountants, attorneys, and other professionals that are directly related to operating this rental or royalty activity.
Include fees for tax advice related to the activity and for the preparation of tax forms related to the business. Also include expenses incurred in resolving asserted tax deficiencies relating to the activity.
Do not deduct legal fees paid or incurred to defend or protect title to property, recover property, or develop and/or improve property. These costs must be capitalized by adding the fees to the property’s basis.
For more information, see IRS Pub. 334, Tax Guide for Small Business or IRS Pub. 535, Business Expenses.
Enter the amount the taxpayer paid for management fees for this rental or royalty activity.
|Lines 12 and 13
||Mortgage Interest and Other Interest
Interest Allocation Rules
These two lines are used only for interest paid on loan proceeds that were used in this rental or royalty activity to purchase property or pay operating expenses. These lines are not used for interest paid on any loan proceeds that were used for personal expenses, other properties, or investments. The taxpayer must differentiate between the property used to secure the loan, such as the taxpayer's home or business property, and what the proceeds of the loan were used for, such as business property, personal property, or business operating expenses.
Line 12-Amounts reported on Form 1098
Enter the full amount of interest paid by the taxpayer for a mortgage that is secured by real property used in this rental or royalty activity that does not include the taxpayer's home, if that interest was reported on Form 1098.
Enter other amounts of interest paid for proceeds of a loan used by this rental or royalty activity, including loans secured by the taxpayer's home, as allowed by the Interest Allocation Rules in Chapter 4 of IRS Pub. 535, Business Expenses, if that interest was reported on Form 1098.
Line 13-Amounts not reported on Form 1098
Enter the full amount of interest paid by the taxpayer for a mortgage that is secured by real property used in this rental or royalty activity that does not include the taxpayer's home, if that interest was not reported on Form 1098.
Enter other amounts of interest paid for proceeds of a loan used by this rental or royalty activity, including loans secured by the taxpayer's home, as allowed by the Interest Allocation Rules in Chapter 4 of IRS Pub. 535, Business Expenses, if that interest was not reported on Form 1098.
Do not include interest the taxpayer prepaid during the tax year for future tax years.
Enter the amount the taxpayer paid for repairs of buildings, and other equipment used in this rental or royalty activity. Include amounts the taxpayer paid for small tools with a short life or minimal cost.
Do not deduct amounts for repairs that add value to the property or appreciably prolong the property's life. These costs must be depreciated over time-See "Depreciation" below.
Enter the amount paid during the tax year for incidental supplies used for the rental or royalty activity that are generally kept on hand for availability of use.
Enter the amount of any of the following taxes or license fees the taxpayer paid during the tax year for this rental or royalty activity:
- Real estate and personal property taxes on business assets
- Licenses and regulatory fees for the rental or royalty activity paid each year to state or local governments - However, certain licenses are classified as Section 179 Intangibles, such as liquor licenses, and must be amortized. See IRS Pub. 535, Business Expenses for details.
Do not enter any of the following on this line:
- Federal income taxes, including the taxpayer's self-employment tax
- Estate and gift taxes
- Taxes assessed to pay for improvements to real property, such as paving and sewers
- Taxes on the taxpayer's home or personal use property
- State and local sales taxes on any type of property purchased for use in the business, which must be depreciated as part of the cost of the property
- Any taxes and license fees not related to this rental or royalty activity
Enter the total amount of utility expenses for this rental or royalty activity, including electricity, phone, and gas services.
Include the business portion of a home phone used, however, do not include any amount of the base rate for local service, including taxes.
Enter all additional ordinary and necessary expenses related to this rental or royalty activity not deducted elsewhere on the Schedule E worksheet. Describe the type and enter the amount of each expense separately in the lines provided.
Do not include any of the following amounts, which are either not deductible, or must be entered elsewhere on the return:
- The cost of business equipment or furniture, and/or replacements or permanent improvements to property;
- Personal, living, and/or family expenses;
- Charitable contributions; and/or
- Fines or penalties paid to any local, state, federal, or foreign government for violating any law.
For more details on Business Expenses, please see IRS Pub. 535, Business Expenses.
||If the taxpayer purchased or placed assets into service during this tax year, or any previous tax year, click the "Add Asset" link to open the Asset - Depreciation Worksheet.
See Add Asset for instructions on entering the appropriate information into this worksheet.