Essential Tips for New Landlords on IRS Schedule E

Becoming a landlord opens a new chapter of financial opportunity, but it also brings tax responsibilities that can feel overwhelming. One of the most important forms new landlords need to understand is IRS Schedule E. This form is where you report income and expenses from rental properties, and knowing how to use it correctly can save you money and prevent headaches with the IRS.

This post breaks down what every new landlord should know about Schedule E, including how to report rental income, what expenses you can deduct, and tips to keep your records organized.

What Is IRS Schedule E and Why It Matters

Schedule E is part of your federal income tax return. It’s used to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits. For new landlords, the focus is on rental real estate income and expenses.

Filing Schedule E correctly is crucial because it determines your taxable rental income. Mistakes can lead to overpaying taxes or triggering an audit. The form helps you show the IRS how much money you made from renting out your property and what costs you had to maintain it.

Reporting Rental Income on Schedule E

Rental income includes all the money you receive from tenants. This is not just rent payments but also any fees related to the rental, such as:

• Security deposits kept as payment

• Advance rent payments

• Expenses paid by tenants that you treat as rent

  
  

You must report the total rental income you received during the tax year. If you have multiple properties, you list each one separately on Schedule E.

Example:

If you rent out a single-family home and receive $1,200 monthly rent, your total rental income for the year would be $14,400. If a tenant paid $500 for a pet deposit that you kept, add that to your income.

Deductible Expenses to Lower Your Taxable Income

One of the benefits of being a landlord is deducting expenses related to your rental property. Schedule E allows you to subtract these costs from your rental income, reducing your taxable profit.

Common deductible expenses include:

• Mortgage interest on the rental property

• Property taxes

• Insurance premiums

• Repairs and maintenance (like fixing a broken heater)

• Utilities paid by you, not the tenant

• Property management fees

• Depreciation of the property (a yearly deduction for wear and tear)

  
  

Important: Improvements that increase the property’s value, such as adding a new roof or remodeling a kitchen, are not deductible as expenses but must be depreciated over several years.

A landlord's ledger showing rental income and expenses, highlighting the importance of record keeping

Keeping Accurate Records for Schedule E

Good record-keeping is essential for completing Schedule E accurately. Keep all receipts, invoices, bank statements, and contracts related to your rental property. Organize them by category, such as repairs, utilities, and mortgage payments.

Using accounting software or spreadsheets can help track income and expenses throughout the year. This reduces stress when tax season arrives and ensures you don’t miss any deductions.

Depreciation Explained Simply

Depreciation allows landlords to recover the cost of their rental property over time. The IRS assumes the property loses value each year due to wear and tear. You can deduct a portion of the property’s value annually, which lowers your taxable income.

For residential rental property, the IRS uses a 27.5-year depreciation schedule. This means you divide the building’s value (not including land) by 27.5 to find your yearly depreciation deduction.

Example:

If your rental property building is worth $275,000, your annual depreciation deduction is $10,000 ($275,000 ÷ 27.5).

Common Mistakes New Landlords Make on Schedule E

Avoid these pitfalls to keep your tax filing smooth:

• Mixing personal and rental expenses: Only report expenses related to the rental property.

• Forgetting to report all rental income: Include all rent and fees received.

• Not depreciating the property: Missing this deduction can cost you thousands.

• Claiming improvements as repairs: Improvements must be depreciated, not deducted immediately.

• Poor record-keeping: Without good records, you risk missing deductions or facing IRS questions.

  
  

When to Get Professional Help

If your rental situation is complex, such as owning multiple properties or dealing with partnerships, consulting a tax professional is wise. They can help you navigate Schedule E, maximize deductions, and avoid errors.