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Form 1040, Schedule E is used to report income or loss from rental real estate, royalties, partnerships, S corporations, estates and trusts. This form is commonly used to report income or loss from rental real activities both residential real estate and commercial real estate.
Schedule E is not used to report the rental of personal property unless the property is leased with real estate. The income and expenses associated with the rental of personal property (such as a car or equipment) would normally be reported on a Schedule C if the rental activity is conducted as part of a business. If the rental activity of personal property is not associated with a business it would be considered Other Income reported on Schedule 1, Line 21 (and any expenses associated with the personal property rental activities would be entered as an adjustment to income on Schedule 1, Line 36). To Enter Rental Real Estate Income on Schedule E from the Main Menu of the Tax Return (Form 1040) select:
On the Schedule E - Rents & Royalties Edit Menu, the Percentage of Ownership and Percentage of Occupancy should be entered. If the percentage of either ownership or occupancy is less than 100% it will impact any rental income or expense amounts that should be prorated based on the taxpayer's ownership of the rental property or the percentage of the property that is available for rental occupancy. When entering Rental Income on a Schedule E, the user will typically enter the total gross amount of rent received for the property. If the taxpayer percent of ownership is less that 100%, the total gross rental income should be entered as Pro Rated Rents Received and the program will automatically calculate the taxpayer's portion of the rental income. All Expenses incurred from the rental property can be deducted inside the Expenses Menu. If the Percentage of Occupancy is less than 100%, the total amount of any direct expenses that were incurred to maintain the rental property (such as advertising, commissions or management fees to real estate rental agent, etc.,) can be entered at 100%. For any indirect expenses or expenses that are associated with the entire rental property (such as the real estate taxes, utilities, mortgage interest, etc.,), the entire gross expense amount should be entered as a Pro Rated Expense and the program will automatically calculate the portion of the indirect expense that is associated with the rental property activity, excluding the portion that isn't deductible. When entering expenses, the user can also create supporting notes to keep track of each expense. For example, when entering Advertising expenses, select the F10 key on your keyboard. Select New, enter a description, and the amount paid. If you have more than one item that falls under the advertising expense category, repeat the steps above to enter those items into the program. The total of the entries will carry back to the expense line, and the printed copy of the return will include a supporting statement listing the detail in the F10 menu. Prior Year Unallowed Loss - If the taxpayer has a prior year unallowed loss on the rental property due to Passive Activity Loss Limitations, this prior year unallowed loss can be entered on Expense Menu. For more information on how rental real estate losses can be allowed or not allowed see Publication 925 - Passive Activity & At-Risk Rules and Instructions for Form 8582 - Passive Activity Loss Limitations. Entering Depreciation Expenses - All capital assets that are associated with the rental property are depreciated to recognize the expense. If you are renting a residential rental home, you can depreciate the residential dwelling and any of the fixtures within the home. The underlying value of the Land associated with the real property is not expensed and should be entered separately in the depreciation module in order to be accounted for in the event the property is later disposed or sold. To enter an asset to be depreciated, from the Expenses Menu, select:
This menu will also allow you to select Mid Quarter, Listed Property, and Disposition. If the property has been sold, be sure to select Disposition, answer YES to being disposed of, enter the disposition date, and then indicate if you want the asset to be carried to Form 4797. If you are carrying the amount to Form 4797, enter the 'Sale Price to Carry to Form 4797', and select where to carry the asset, 'Part I, Part II, or Part III'. For more information on Depreciation, see Publication 946. Source: TaxSlayer Pro
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AuthorElizia Meskill is licensed as an Enrolled Agent (EA). As an EA, Elizia specializes in taxation, with unlimited rights to represent taxpayers before the IRS. She currently runs her own firm with over 1,200 clients, she specializes in small businesses taxes and business entity planning & structure. ArchivesCategories
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