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Taxmap/pub17/p17-052.htm#TXMP355013c7 How To Report   Rental Income   and Expenses

Rental Income and Expenses

If you rent buildings, rooms, or apartments, and provide only heat and light, trash collection, etc., you normally report your rental income and expenses on Form 1040, Schedule E, Part I. However, do not use that schedule to report a not-for-profit activity. See Not Rented for Profit, earlier.

If you provide significant services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business or Schedule C-EZ, Net Profit From Business (Sole Proprietorship). Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. For information, see Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ). You also may have to pay self-employment tax on your rental income. See Publication 533, Self-Employment Tax.

Taxmap/pub17/p17-052.htm#TXMP5feb0d8f Form 1098.

F1098

If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, Mortgage Interest Statement, or similar statement showing the interest you paid for the year. If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Form 1040, Schedule E, line 13. Attach a statement to your return showing the name and address of the other person. In the left margin of Schedule E (Form 1040), next to line 13, enter "See attached."

Taxmap/pub17/p17-052.htm#TXMP297563c9 Schedule E (Form 1040)

Use Form 1040, Schedule E, Part I, to report your rental income and expenses. List your total income, expenses, and depreciation for each rental property. Be sure to answer the question on line 2.

If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Complete lines 1 and 2 for each property. However, fill in the "Totals" column on only one Schedule E. The figures in the "Totals" column on that Schedule E should be the combined totals of all Schedules E.

Schedule E, page 2, is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. If you need to use Schedule E, page 2, use page 2 of the same Schedule E you used to enter the combined totals in Part I.

On Schedule E, page 1, line 20, enter the depreciation you are claiming. You must complete and attach Form 4562 for rental activities only if you are claiming:

• Depreciation on property placed in service during 2004,
• Depreciation on listed property (such as a car), regardless of when it was placed in service, or
• Any car expenses reported on a form other than Schedule C or C-EZ (Form 1040) or Form 2106 or Form 2106-EZ.

Otherwise, figure your depreciation on your own worksheet. You do not have to attach these computations to your return.

Taxmap/pub17/p17-052.htm#TXMP2ac5d148
Example.

On January 1, Justin Cole bought a townhouse and placed it in service as residential rental property. He receives $1,100 a month rental income. His rental expenses for the year are as follows:

Fire insurance (1-year policy)	$ 200
Mortgage interest	5,000
Fee paid to real estate company for  collecting monthly rent	572
General repairs	175
Real estate taxes imposed and paid	800

Justin's basis for depreciation of the townhouse is $150,000. He is using MACRS with a 27.5-year recovery period. On April 1, Justin bought a new refrigerator for the rental property at a cost of $725. He uses the MACRS method with a 5-year recovery period. The refrigerator qualifies for the special depreciation allowance which he figures first.

Justin uses the percentage for January in Table 10-2-D to figure his depreciation deduction for the townhouse. He uses the percentage under "Half-year convention" in Table 10-2-A to figure his depreciation deduction for the refrigerator. He must report the depreciation on Form 4562.

Justin figures his net rental income or loss for the townhouse as follows:

Total rental income received
($1,100 × 12)		$13,200
Minus Expenses:
Fire insurance (1-year policy)	200
Mortgage interest	5,000
Rent collection fee	572
General repairs	175
Real estate taxes	800
Total expenses		6,747
Balance		$6,453
Minus Depreciation:
Townhouse  ($150,000 × 3.485%)	5,228
Refrigerator-special  allowance  ($725 × 50%)	363
Refrigerator ($725 - $363  (special allowance) × 20%)	72
Total depreciation		5,663
Net rental income for townhouse		$ 790

Previous Page:  Publication 17 - Your Federal Income Tax - Limits on Rental Losses Next Page:  Publication 17 - Your Federal Income Tax - Retirement Plans, Pensions, and Annuities Use     to find additional instances of index items.