Form 1040 Schedule E - Supplemental Income And Loss

Federal Form 1040 Schedule E, also known as Supplemental Income and Loss, is used to report income from rental properties, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs (Real Estate Mortgage Investment Conduits).

In more detail, Schedule E is used to report:

  • Rental income and expenses from rental properties
  • Royalty income
  • Income from partnerships, S corporations, estates, and trusts
  • Income from residual interests in REMICs

When reporting rental income, only the rental income that relates to properties shown on the Schedule of Real Estate Owned on the borrower's loan application should be included. All regular and ongoing expenses for the properties, such as maintenance, advertising, management fees, utilities, homeowners' association dues, and supply costs, should be subtracted from the borrower's cash flow.

Additionally, adjustments may need to be made for depreciation and any one-time extraordinary expenses, such as the costs of repairing damage that resulted from a natural disaster. The full amount of the mortgage payment for a rental property will be factored into the net rental income calculation, but it may also be counted as part of the liabilities that are considered in the calculation of the borrower's total debt-to-income ratio.