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Schedule E for Rental Property: A Landlord's Guide (2026)

How landlords report rental income on Schedule E: what counts as rent, deductible expenses, 27.5-year depreciation and the $25,000 rental loss allowance.

If you own a rental property, the rent, the expenses and the depreciation all end up on one page of your tax return: Schedule E (Form 1040), Supplemental Income and Loss. Get it right and a property that earns cash can show little or no taxable profit, mostly thanks to depreciation. Get it wrong and you either overpay or claim deductions that fall apart under review.

This guide explains who files Schedule E, what counts as rental income, which expenses you can deduct, how depreciation and the repairs-versus-improvements rule work, and when a rental loss can reduce your other income. The rules come from IRS Topic 414 and Publication 527 (2025), and were checked on November 2, 2026.

This is general information, not tax advice. Rental property taxes have many special cases; talk to a CPA or enrolled agent about your own properties.

Schedule E at a glance
Who uses it Most individuals who rent out real estate (Part I)
Not for Rentals with substantial services for tenants’ convenience (use Schedule C)
Income Rent, advance rent, lease-cancellation payments, expenses a tenant pays for you
Main deductions Mortgage interest, property taxes, insurance, repairs, management and professional fees, depreciation
Depreciation Building only, not land: 27.5 years, straight line, mid-month convention
Losses Generally passive; up to $25,000 may offset other income with active participation
Related forms Form 4562 (depreciation), Form 8582 (passive loss limits)

Who files Schedule E

You generally report real estate rentals on Schedule E, Part I, attached to your Form 1040. Each property gets its own column, with its address, the type of property and the number of days it was rented at a fair price and used personally.

There is one important exception. If you provide substantial services primarily for your tenants’ convenience, the IRS treats it as a business and you report on Schedule C instead. Ordinary landlord work such as repairs, trash collection or cleaning common areas does not make it a business.

If you rent out a place you also use as a home, special rules apply. If you rent it for less than 15 days during the year, you do not report the rent at all, and you cannot deduct the expenses as rental expenses. If your personal use is more than the greater of 14 days or 10% of the days rented at a fair price, the unit counts as a home and your deductions are limited. Publication 527 walks through both cases.

What counts as rental income

Most landlords use the cash method, so rent is income when you receive it. Rental income includes:

  • Normal rent for each month you receive it.
  • Advance rent, in the year you receive it, whatever period it covers.
  • Lease-cancellation payments a tenant makes to end the lease early.
  • Expenses a tenant pays for you, such as a repair bill they cover and deduct from rent. You report it as income, and you may also deduct it as an expense.

Security deposits are not income if you may have to return them. If you keep part of a deposit because the tenant leaves early, it becomes income that year. If a deposit is meant to cover the last month’s rent, it is advance rent and taxable when you receive it.

Deductible rental expenses

Ordinary and necessary costs of managing and maintaining the property are deductible against rental income. Common ones:

  • Mortgage interest (not the principal)
  • Property taxes
  • Insurance
  • Repairs and maintenance
  • Property management fees
  • Fees for accountants, attorneys, bookkeepers and other contractors
  • Advertising for tenants
  • Utilities you pay
  • Travel to manage the property, within the IRS rules
  • Depreciation of the building, improvements and furnishings

Uncollected rent is not deductible for a cash-method landlord, because you never counted it as income. Tax preparation fees for the rental part of your return are deductible as a rental expense.

Rental activities may also qualify for the 20% qualified business income (QBI) deduction if they meet the IRS safe-harbor requirements in Revenue Procedure 2019-38.

Depreciation: the biggest deduction most landlords have

You cannot deduct the price of a rental building in the year you buy it. You recover it through depreciation, starting when the property is placed in service, which means ready and available to rent.

  • Residential rental property is depreciated under the General Depreciation System (MACRS GDS), straight line over 27.5 years.
  • A mid-month convention applies: property placed in service in any month is treated as placed in service in the middle of that month.
  • Land is never depreciated, because it does not wear out. Clearing, grading and landscaping costs are usually part of the land cost too. That is why you split the purchase price between building and land.
  • Improvements and furnishings are depreciated from the year they are placed in service.

You report depreciation on Form 4562 in the year a property or improvement is first placed in service, and in some later years.

Example

You buy a rental house for $300,000, and the land is worth $60,000 of that. The depreciable basis of the building is $240,000. For a full year, straight-line depreciation over 27.5 years is about $8,727 ($240,000 ÷ 27.5). The first year is smaller because of the mid-month convention; the IRS percentage tables in Publication 527 give the exact rate for the month you start.

If the house brings in $24,000 of rent and you have $14,000 of interest, taxes, insurance and repairs, your cash profit is $10,000, but after about $8,727 of depreciation your taxable rental income is only about $1,273. When you sell, depreciation you were allowed generally reduces your basis and can be taxed, so keep records of every year’s depreciation.

Repairs vs improvements

This is the line landlords most often get wrong.

  • A repair keeps the property in good working condition without adding value, such as fixing a leak or repainting a room. You deduct it in the year you pay.
  • An improvement must be capitalized and depreciated. The IRS says an expense is an improvement if it results in a betterment to the property, restores it, or adapts it to a new or different use.

Publication 527 lists examples of improvements, including a new bedroom, bathroom, deck or garage, a new roof, central air conditioning, a furnace, a water heater, a fence, a security system, wiring upgrades and storm windows. When in doubt, check that table before you deduct a large expense in one year.

When a rental loss can reduce your other income

Rental activities are generally passive, so a rental loss can normally offset only passive income. There is a major exception for ordinary landlords:

  • If you actively participated, you may deduct up to $25,000 of rental loss against nonpassive income such as wages.
  • Active participation means you (with your spouse) owned at least 10% of the property and made management decisions in a real sense, such as approving tenants, setting rent terms or approving expenses, or arranged for others to provide services.
  • The allowance phases out as modified adjusted gross income (MAGI) rises above $100,000: it is reduced by 50% of the amount over $100,000 and is gone at $150,000 ($50,000 and $75,000 if married filing separately and living apart all year).

Losses you cannot use carry forward to later years, or until you sell the property. Many landlords with only actively managed rentals and a net loss of $25,000 or less do not need Form 8582; check the conditions in Publication 527.

Rental profit may also be subject to the net investment income tax at higher incomes (IRS Topic 559).

Keep records by property

Schedule E is filled in property by property, so your books should be too. For each rental, track rent received, every expense with its receipt, the purchase price split between land and building, every improvement with its date and cost, and each year’s depreciation. That record is what makes your Schedule E quick to prepare and easy to defend.

Rental-specific bookkeeping tools such as Stessa, Baselane and REI Hub track income and expenses by property and produce Schedule E reports. We compare them, along with QuickBooks Online, in our rental property accounting software guide.

The bottom line

Schedule E reports each rental’s income and expenses. Depreciate the building, not the land, over 27.5 years; deduct repairs but capitalize improvements; and if you actively manage your rentals, a loss can offset up to $25,000 of other income until your income passes the phase-out range. Clean records by property make all of it easier.

More for real estate: rental property accounting software, CRM for real estate agents and real estate drip campaigns.

Frequently asked questions

Who has to file Schedule E?

Most individuals who rent out real estate report the income and expenses on Schedule E (Form 1040), Part I. If you provide substantial services mainly for your tenants' convenience, such as hotel-style services, you report on Schedule C instead.

How long do you depreciate a rental property?

Residential rental property is depreciated under MACRS GDS using the straight-line method over 27.5 years, with a mid-month convention. You depreciate the building and improvements, not the land, starting when the property is placed in service.

Can rental losses offset my W-2 income?

Sometimes. If you actively participated in the rental, you may deduct up to $25,000 of rental loss against nonpassive income such as wages. The allowance phases out between $100,000 and $150,000 of modified adjusted gross income ($50,000 to $75,000 if married filing separately and living apart).

Is a security deposit rental income?

Not if you may have to return it at the end of the lease. If you keep some or all of it, for example because the tenant left early, include the amount you keep in income that year. A deposit that will be used as the last month's rent is advance rent, taxable when you receive it.

Sources and updates

Facts in this article were last checked against the official sources below on . Rules and thresholds change, so confirm anything you act on with the official source or a qualified professional. Spot something out of date? Tell us and we will re-check it. How we work: editorial policy.