Schedule E

Schedule E — formally “Supplemental Income and Loss” — covers three categories of income: rental and royalty income (Part I), partnership and S-Corp income from K-1s (Part II), and estate and trust income (Part III). Landlords with residential rental property use Part I.

Who files Schedule E (Part I)

You file Schedule E Part I if you own rental property — residential or commercial — and collect rent. This includes:

• Residential rental units (apartments, single-family homes)
• Vacation rentals (Airbnb, VRBO) — if you materially participate and the property averages more than 7 days rental per guest
• Room rentals within your primary residence
• Commercial rental properties

Unlike Schedule C, rental income on Schedule E is subject to passive activity rules, not self-employment tax. If you have a net loss from rental activity, it may be suspended under passive activity rules (IRC §469) unless you are a real estate professional or your AGI is under $100,000 (in which case you may deduct up to $25,000 in passive losses — phase-out begins at $100K AGI).

Key Schedule E deductions for landlords

• Depreciation. Residential rental property is depreciated over 27.5 years (straight-line). This is often the largest Schedule E deduction and requires IRS Form 4562. FreeTaxUSA and H&R Block Premium both handle residential depreciation — TurboTax Premier has the most guided flow.
• Mortgage interest. Interest on a loan used to acquire or improve the rental property.
• Insurance. Landlord insurance premiums.
• Repairs. Costs to maintain the property in good condition (not improvements — those are capitalized).
• Property management fees.
• Property taxes.
• Travel to inspect or maintain the property.
• Professional services — attorney, accountant fees related to the rental.

QBI deduction and rental real estate

The qualified business income (QBI) deduction under IRC §199A may apply to rental income if the rental activity rises to the level of a “trade or business.” The IRS provided a safe harbor in Revenue Procedure 2019-38: if you spend 250+ hours per year on rental activities (ownership of 1-3 properties typically doesn’t meet this), you may qualify. Software handles this automatically once you input the activity hours.

Which software handles Schedule E best

FreeTaxUSA supports Schedule E with basic depreciation at the free federal tier. TurboTax Premier has the most guided depreciation walk-through but costs $168 vs $14.99.