2025 Instructions for

2025

2025 Instructions for

Schedule E (Form 1040)

Supplemental Income and Loss

Section references are to the Internal Revenue Code unless

otherwise noted.

Future Developments

For the latest information about developments related to

Schedule E (Form 1040) and its instructions, such as legislation

enacted after they were published, go to IRS.gov/ScheduleE.

What’s New

Standard mileage rate. The standard mileage rate for miles

driven in connection with your rental activities increased to 70

cents a mile for 2025.

Bonus depreciation. The 100% special depreciation

allowance is restored for qualified property acquired after

January 19, 2025. However, property put into service between

January 1, 2025, and January 19, 2025, or acquired before

January 20, 2025, and put into service later will remain subject to

the phase-down rules under prior law. For more information, see

Form 4562, Depreciation and Amortization, and its instructions.

Increased section 179 deduction dollar limits. For tax years

beginning in 2025, the maximum section 179 expense deduction

is $2,500,000. This amount is reduced by the amount by which

the cost of section 179 property placed in service exceeds

$4,000,000.

Business interest expense limitation. The business interest

expense in your rental real estate activity may be limited. See

Limitation on business interest. For tax years beginning in 2025,

the calculation of adjusted taxable income includes a

requirement to add back to taxable income the deductions for

depreciation, amortization, and depletion to arrive at the amount

that is used to determine if your interest expense is limited. For

more information, see Form 8990, Limitation on Business

Interest Expense Under Section 163(j), and its instructions.

No tax on car loan interest. If you are self-employed and use

your vehicle for personal and business use, you may be eligible

to take a deduction for the interest for the personal use on

Schedule 1-A (Form 1040). You can only deduct the part of the

interest expense that represents the business use of your vehicle

on Schedule E (Form 1040). See the Instructions for Schedule

1-A (Form 1040) for more information.

Reminders

Form 7205, Energy Efficient Commercial Buildings Deduction. This form and its separate instructions are used to claim

the section 179D deduction for the cost of energy efficient

commercial building property and energy efficient building retrofit

property placed in service during the tax year.

Excess business loss limitation. If you report a loss on

line 26, 32, 37, or 39 of your Schedule E (Form 1040), you may

be subject to a business loss limitation. The disallowed loss

resulting from the limitation will not be reflected on line 26, 32,

37, or 39 of your Schedule E. Instead, use Form 461 to

Nov 12, 2025

determine the amount of your excess business loss, which will

be included as income on Schedule 1 (Form 1040), line 8p. Any

disallowed loss resulting from this limitation will be treated as a

net operating loss that must be carried forward and deducted in

a subsequent year.

See Form 461 and its instructions for details on the excess

business loss limitation.

Figuring a shareholder’s stock and debt basis. See Form

7203 and its separate instructions, which have been developed

to replace the three-part Worksheet for Figuring a Shareholder’s

Stock and Debt Basis and its related instructions formerly found

in the Shareholder’s Instructions for Schedule K-1 (Form

1120-S) .

General Instructions

Use Schedule E (Form 1040) to report income or loss from rental

real estate, royalties, partnerships, S corporations, estates,

trusts, and residual interests in REMICs.

You can attach your own schedule(s) to report income or loss

from any of these sources. Use the same format as on

Schedule E.

Enter separately on Schedule E the total income and the total

loss for each part. Enclose loss figures in (parentheses).

Other Schedules and Forms You May

Have To File

• Schedule A (Form 1040) to deduct interest, taxes, and

casualty losses not related to your business.

• Form 461 to report an excess business loss.

• Form 941 to report the employer share and employee share of

social security tax and Medicare tax, withheld federal income

tax, and, if applicable, withheld Additional Medicare Tax.

• Form 944 for smallest employers (those whose annual liability

for social security, Medicare, and withheld federal income taxes

is $1,000 or less) to file and pay these taxes only once a year

instead of every quarter.

• Form 1041 to report information for estates and trusts.

• Form 3520 to report certain transactions with foreign trusts

and receipt of certain large gifts or bequests from certain foreign

persons.

• Form 4562 to claim depreciation and amortization (including

information on listed property) on assets placed in service in

2025, to claim amortization that began in 2025, to make an

election under section 179 to expense certain property, or to

report information on listed property.

• Form 4684 to report a casualty or theft gain or loss involving

property used in your trade or business or income-producing

property.

• Form 4797 to report sales, exchanges, and involuntary

conversions (not from a casualty or theft) of trade or business

property.

• Form 6198 to apply a limitation to your loss from an at-risk

activity.

Instructions for Schedule E (Form 1040) (2025) Catalog Number 24332T

Department of the Treasury Internal Revenue Service www.irs.gov

• Form 7203 to figure potential limitations of your share of the S

corporation’s deductions, credits, and other items that can be

deducted on your return.

• Form 7205 to claim the deduction for the cost of energy

efficient commercial building property and energy efficient

building retrofit property placed in service during the tax year.

• Form 8082 to notify the IRS of any inconsistent tax treatment

for an item on your return.

• Form 8582 to apply a limitation to your loss from passive

activities.

• Form 8824 to report like-kind exchanges.

• Form 8826 to claim a credit for expenditures to improve

access to your business for individuals with disabilities.

• Form 8873 to figure your extraterritorial income exclusion.

• Form 8960 to pay Net Investment Income Tax on certain

income from your rental and other passive activities.

• Form 8990 to determine whether your business interest

deduction is limited.

• Form 8995 or 8995-A to claim a deduction for qualified

business income.

Single-member limited liability company (LLC). In most

cases, a single-member domestic LLC is not treated as a

separate entity for federal income tax purposes. If you are the

sole member of a domestic LLC, file Schedule E (or Schedule C

or F, if applicable). However, you can elect to treat a domestic

LLC as a corporation. See Form 8832 for details on the election

and the tax treatment of a foreign LLC.

Information returns. You may have to file information returns

for wages paid to employees, certain payments of fees and other

nonemployee compensation, interest, rents, royalties, real estate

transactions, annuities, and pensions. For details, see Line A,

later, and the 2025 General Instructions for Certain Information

Returns.

If you received cash of more than $10,000 in one or more

related transactions in your trade or business, you may have to

file Form 8300. For details, see Pub. 1544.

Qualified Joint Venture (QJV)

If you and your spouse each materially participate (see Material

participation in the Instructions for Schedule C) as the only

members of a jointly owned and operated rental real estate

business and you file a joint return for the tax year, you can elect

to be treated as a QJV instead of a partnership. This election, in

most cases, will not increase the total tax owed on the joint

return. By making the election, you will not be required to file

Form 1065 for any year the election is in effect and will instead

report the income and deductions directly on your joint return. If

you and your spouse filed Form 1065 for the year prior to the

election, the partnership terminates at the end of the tax year

immediately preceding the year the election takes effect.

Note: Mere joint ownership of property that is not a trade or

business does not qualify for the election.

Only businesses that are owned and operated by

spouses as co-owners (and not in the name of a state

CAUTION law entity) qualify for the election. Thus, a business

owned and operated by spouses through an LLC does not

qualify for the election of a QJV.

!

Making the election. To make this election for your rental real

estate business, check the “QJV” box on line 2 for each property

that is part of the QJV. You must divide all items of income, gain,

loss, deduction, and credit attributable to the rental real estate

business between you and your spouse in accordance with your

respective interests in the venture. Although you and your

spouse will not each file your own Schedule E as part of the QJV,

each of you must report your interest as separate properties on

line 1 of Schedule E. On lines 3 through 22 for each separate

2

property interest, you must enter your share of the applicable

income, deduction, or loss.

If you have more than three rental real estate or royalty

properties, complete and attach as many Schedules E as you

need to list them. But fill in lines 23a through 26 on only one

Schedule E. The figures on lines 23a through 26 on that

Schedule E should be the combined totals for all properties

reported on your Schedules E.

Once made, the election can be revoked only with the

permission of the IRS. However, the election technically remains

in effect only for as long as the spouses filing as a QJV continue

to meet the requirements to be treated as a QJV. If the spouses

fail to meet the QJV requirements for a year, a new election will

be necessary for any future year in which the spouses meet the

requirements to be treated as a QJV.

Rental real estate income is generally not included in net

earnings from self-employment subject to self-employment tax

and is generally subject to passive loss limitation rules. Electing

QJV status does not alter the application of the self-employment

tax or the passive loss limitation rules.

For more information on QJVs, go to IRS.gov/QJV.

Reportable Transaction Disclosure

Statement

Use Form 8886 to disclose information for each reportable

transaction in which you participated. Form 8886 must be filed

for each tax year that your federal income tax liability is affected

by your participation in the transaction. You may have to pay a

penalty if you are required to file Form 8886 but do not do so.

You may also have to pay interest and penalties on any

reportable transaction understatements. The following are

reportable transactions.

• Any listed transaction that is the same as or substantially

similar to tax avoidance transactions identified by the IRS.

• Any transaction offered to you or a related party under

conditions of confidentiality for which you paid an advisor a fee

of at least $50,000 for individuals or $250,000 for partnerships

and trusts. See the Instructions for Form 8886.

• Certain transactions for which you or a related party have

contractual protection against disallowance of the tax benefits.

• Certain transactions resulting in a loss of at least $2 million in

any single tax year or $4 million in any combination of tax years

(at least $50,000 for a single tax year if the loss arose from a

foreign currency transaction defined in section 988(c)(1),

whether or not the loss flows through from an S corporation or

partnership).

• Certain transactions of interest entered into that are the same

as or substantially similar to transactions that the IRS has

identified by notice, regulation, or other form of published

guidance as transactions of interest.

See the Instructions for Form 8886 for more details.

Limitation on Losses

If you report a loss from rental real estate or royalties in Part I, a

loss from a partnership or S corporation in Part II, or a loss from

an estate or trust in Part III, your loss may be reduced or not

allowed this year. You must apply the following rules to your loss.

• Basis rules apply to losses from a partnership or S

corporation. See Basis rules for partnerships and Basis rules for

S corporations, later, in Part II.

• At-risk rules apply to losses from rental real estate or royalties.

They also apply to losses from a partnership, S corporation,

estate, or trust. See At-Risk Rules, later, in the General

Instructions. If the loss is from a partnership or S corporation,

also see At-risk rules, later, in Part II.

• Passive activity loss rules apply to losses from rental real

estate. They also apply to losses from a partnership, S

corporation, estate, or trust. See Passive Activity Loss Rules,

later, in the General Instructions. If the loss is from a partnership

or S corporation, also see Passive activity loss rules, later, in Part

II.

• Excess business loss rules apply to losses from all

noncorporate trades or businesses. This loss limitation is figured

using Form 461 after you complete your Schedule E. Any

limitation to your loss resulting from these rules will not be

reflected on your Schedule E. Instead, it will be included as

income on Schedule 1 (Form 1040), line 8p, and treated as a net

operating loss that must be carried forward and deducted in a

subsequent year. These rules also apply to losses from a

partnership or S corporation.

At-Risk Rules

In most cases, you must complete Form 6198 to figure your loss

if you have:

• A loss from an activity carried on as a trade or business or for

the production of income, and

• Amounts in the activity for which you are not at risk.

The at-risk rules in most cases limit the amount of loss

(including loss on the disposition of assets) you can claim to the

amount you could actually lose in the activity. However, the

at-risk rules do not apply to losses from an activity of holding real

property placed in service before 1987. They also do not apply

to losses from your interest acquired before 1987 in a

pass-through entity engaged in such activity. The activity of

holding mineral property does not qualify for this exception.

In most cases, you are not at risk for amounts such as the

following.

• Nonrecourse loans used to finance the activity, to acquire

property used in the activity, or to acquire your interest in the

activity that are not secured by your own property (other than

property used in the activity). However, there is an exception for

certain nonrecourse financing borrowed by you in connection

with the activity of holding real property (other than mineral

property). See Qualified nonrecourse financing, later.

• Cash, property, or borrowed amounts used in the activity (or

contributed to the activity, or used to acquire your interest in the

activity) that are protected against loss by a guarantee, stop-loss

agreement, or other similar arrangement (excluding casualty

insurance and insurance against tort liability).

• Amounts borrowed for use in the activity from a person who

has an interest in the activity (other than as a creditor) or who is

related under section 465(b)(3)(C) to a person (other than you)

having such an interest.

Qualified nonrecourse financing. Qualified nonrecourse

financing is treated as an amount at risk if it is secured by real

property used in an activity of holding real property subject to the

at-risk rules. Qualified nonrecourse financing is financing for

which no one is personally liable for repayment and is:

• Borrowed by you in connection with the activity of holding real

property (other than mineral property);

• Not convertible from a debt obligation to an ownership

interest; and

• Loaned or guaranteed by any federal, state, or local

government, or borrowed by you from a qualified person.

Qualified person. A qualified person is a person who

actively and regularly engages in the business of lending money,

such as a bank or savings and loan association. A qualified

person cannot be:

• Related to you (unless the nonrecourse financing obtained is

commercially reasonable and on substantially the same terms as

loans involving unrelated persons),

• The seller of the property (or a person related to the seller), or

• A person who receives a fee due to your investment in real

property (or a person related to that person).

More information. For more details about the at-risk rules, see

the Instructions for Form 6198 and Pub. 925.

Passive Activity Loss Rules

The passive activity loss rules may limit the amount of losses you

can deduct. These rules apply to losses in Parts I, II, and III, and

line 40 of Schedule E.

Losses from passive activities may be subject first to the

at-risk rules. Losses deductible under the at-risk rules are then

subject to the passive activity loss rules.

You can deduct losses from passive activities in most cases

only to the extent of income from passive activities. An exception

for certain rental real estate activities (explained later) may apply.

Passive Activity

A passive activity is any business activity in which you did not

materially participate and any rental activity, except as explained

later. If you are a limited partner, in most cases, you are not

treated as having materially participated in the partnership’s

activities for the year.

The rental of a real or personal property is a rental activity

under the passive activity loss rules in most cases, but

exceptions do apply. If your rental of a property is not treated as

a rental activity, you must determine whether or not it is a trade or

business activity and, if so, whether you materially participated in

the activity for the year.

See the Instructions for Form 8582 to determine whether you

materially participated in the activity and for the definition of

“rental activity.”

See Pub. 925 for special rules that apply to rentals of:

• Substantially nondepreciable property,

• Property incidental to development activities, and

• Property related to activities in which you materially

participate.

Activities That Are Not Passive Activities

Activities of real estate professionals. If you were a real

estate professional for 2025, any rental real estate activity in

which you materially participated is not a passive activity. You

were a real estate professional for the year only if you met both

of the following conditions.

• More than half of the personal services you performed in

trades or businesses during the year were performed in real

property trades or businesses in which you materially

participated.

• You performed more than 750 hours of services during the

year in real property trades or businesses in which you materially

participated.

If you are married filing jointly, either you or your spouse must

meet both of the above conditions without taking into account

services performed by the other spouse.

A real property trade or business is any real property

development, redevelopment, construction, reconstruction,

acquisition, conversion, rental, operation, management, leasing,

or brokerage trade or business. Services you performed as an

employee are not treated as performed in a real property trade or

business unless you owned more than 5% of the stock (or more

than 5% of the capital or profits interest) in the employer.

If you qualify as a real estate professional, rental real estate

activities in which you materially participated are not passive

activities. For purposes of determining whether you materially

participated in your rental real estate activities, each interest in

rental real estate is a separate activity unless you elect to treat all

your interests in rental real estate as one activity. To make this

election, attach a statement to your original tax return that

3

declares you are a qualifying taxpayer for the year and you are

making the election under section 469(c)(7)(A). The election

applies for the year made and all later years in which you are a

real estate professional. You can revoke the election only if your

facts and circumstances materially change.

If you did not make this election on your timely filed

TIP return, you may be eligible to make a late election to

treat all your interest in rental real estate as one activity.

See Rev. Proc. 2011-34, 2011-24 I.R.B. 875, available at

IRS.gov/irb/2011-24_IRB#RP-2011-34

If you were a real estate professional for 2025, complete

Schedule E, line 43.

Other activities. The rental of a dwelling unit that you used as a

home is not subject to the passive loss limitation rules. See

Line 2, later, to see if you used the dwelling unit as a home.

A working interest in an oil or gas well you held directly or

through an entity that did not limit your liability is not a passive

activity even if you did not materially participate.

Royalty income not derived in the ordinary course of a trade

or business reported on Schedule E in most cases is not

considered income from a passive activity.

For more details on passive activities, see the Instructions for

Form 8582 and Pub. 925.

Exception for Certain Rental Real Estate Activities

If you meet all of the following conditions, your rental real estate

losses are not limited by the passive activity loss rules, and you

do not need to complete Form 8582. If you do not meet all of

these conditions, see the Instructions for Form 8582 to find out if

you must complete and attach Form 8582 to figure any losses

allowed.

1. Rental real estate activities are your only passive

activities.

2. You do not have any prior-year unallowed losses from any

passive activities.

3. All of the following apply if you have an overall net loss

from these activities.

a. You actively participated (defined later) in all of the rental

real estate activities.

b. If married filing separately, you lived apart from your

spouse all year.

c. Your overall net loss from these activities is $25,000 or

less ($12,500 or less if married filing separately).

d. You have no current or prior-year unallowed credits from

passive activities.

e. Your modified adjusted gross income (MAGI) is $100,000

or less ($50,000 or less if married filing separately). For a

definition of MAGI, see Special $25,000 allowance in Pub. 925.

Also, see Line 6 in the Instructions for Form 8582.

f. You do not hold any interest in a rental real estate activity

as a limited partner or as a beneficiary of an estate or a trust.

Active participation. You can meet the active participation

requirement without regular, continuous, and substantial

involvement in real estate activities. But you must have

participated in making management decisions or arranging for

others to provide services (such as repairs) in a significant and

bona fide sense. Such management decisions include:

• Approving new tenants,

• Deciding on rental terms,

• Approving capital or repair expenditures, and

• Other similar decisions.

4

You are not considered to actively participate if, at any time

during the tax year, your interest (including your spouse’s

interest) in the activity was less that 10% by value of all interests

in the activity. Except as provided in regulations, limited partners

aren’t treated as actively participating in a partnership’s rental

real estate activities.

Recordkeeping

You must keep records to support items reported on Schedule E

in case the IRS has questions about them. If the IRS examines

your tax return, you may be asked to explain the items reported.

Good records will help you explain any item and arrive at the

correct tax with a minimum of effort. If you do not have records,

you may have to spend time getting statements and receipts

from various sources. If you cannot produce the correct

documents, you may have to pay additional tax and be subject to

penalties.

Specific Instructions

Filers of Form 1041. If you are a fiduciary filing Schedule E

with Form 1041, enter the estate’s or trust’s employer

identification number (EIN) in the space for “Your social security

number.”

Part I

Before you begin, see Line 3 and Line 4, later, to

determine if you should report your rental real estate and

CAUTION royalty income on Schedule C or Form 4835 , instead of

Schedule E.

!

Line A

If you made any payments in 2025 that would require you to file

any Forms 1099, check the “Yes” box. Otherwise, check the “No”

box. In general, if you paid at least $600 for services performed

by someone who is not your employee (nonemployee

compensation), you must file Form 1099-NEC. Generally, you

must file Form 1099-MISC if you paid at least $600 in rents,

prizes, medical and health care payments, or other

miscellaneous amounts that would be income to the person

receiving them. See the 2025 General Instructions for Certain

Information Returns if you are unsure whether you were required

to file any Forms 1099. Also, see the separate instructions for

each Form 1099.

Income or Loss From Rental Real

Estate and Royalties

Use Part I to report the following.

• Income and expenses from rental real estate (including

personal property leased with real estate).

• Royalty income and expenses.

• For an estate or trust only, farm rental income and expenses

based on crops or livestock produced by the tenant. Estates and

trusts do not use Form 4835 or Schedule F (Form 1040) for this

purpose.

If you own a part interest in a rental real estate property, report

only your part of the income and expenses on Schedule E.

Complete lines 1a, 1b, and 2 for each rental real estate

property. For royalty property, enter code “6” on line 1b and leave

lines 1a and 2 blank for that property.

If you have more than three rental real estate or royalty

properties, complete and attach as many Schedules E as you

need to list them. But answer lines A and B and fill in lines 23a

through 26 on only one Schedule E. The figures on lines 23a

through 26 on that Schedule E should be the combined totals for

all properties reported on your Schedules E. If you are also using

page 2 of Schedule E, use the same Schedule E on which you

entered the combined totals for Part I.

Personal property. Do not use Schedule E to report income

and expenses from the rental of personal property, such as

equipment or vehicles. Instead, use Schedule C if you are in the

business of renting personal property. You are in the business of

renting personal property if the primary purpose for renting the

property is income or profit and you are involved in the rental

activity with continuity and regularity.

If your rental of personal property is not a business, see the

instructions for Schedule 1 (Form 1040), lines 8l and 24b, to find

out how to report the income and expenses.

Extraterritorial income exclusion. Except as otherwise

provided in the Internal Revenue Code, gross income includes

all income from whatever source derived. Gross income,

however, does not include extraterritorial income that is

qualifying foreign trade income under certain circumstances.

Use Form 8873 to figure the extraterritorial income exclusion.

Report it on Schedule E as explained in the Instructions for Form

8873.

Chapter 11 bankruptcy cases. If you were a debtor in a

chapter 11 bankruptcy case, see Chapter 11 Bankruptcy Cases

under Income in the Instructions for Form 1040.

Income you report on Schedule E may be qualified

TIP business income and entitle you to a deduction on Form

1040, 1040-SR, or 1040-NR. See the Instructions for

Form 8995-A for more information about this deduction.

Line 1a

For rental real estate property only, show the street address, city

or town, state, and ZIP code. If the property is located in a

foreign country, enter the city, province or state, country, and

postal code.

Line 1b

Enter one of the codes listed under “Type of Property” in Part I of

the form.

Land rental. Enter code “5” for rental of land. For details about

the tax treatment of income from this type of rental property, see

Rental of Nondepreciable Property in Pub. 925.

• Anyone in your family (or in the family of someone else who

owns part of the unit), unless the unit is rented at a fair rental

price to that person as his or her main home;

• Anyone who pays less than a fair rental price for the unit; or

• Anyone under an agreement that lets you use some other unit.

Do not count as personal use:

• Any day you spent working substantially full time repairing and

maintaining the unit, even if family members used it for

recreational purposes on that day; or

• Any days you used the unit as your main home before or after

renting it or offering it for rent, if you rented or tried to rent it for at

least 12 consecutive months (or for a period of less than 12

consecutive months at the end of which you sold or exchanged

it).

Whether or not you can deduct expenses for the unit depends

on whether or not you used the unit as a home in 2025. You used

the unit as a home if your personal use of the unit was more than

the greater of:

• 14 days, or

• 10% of the total days it was rented to others at a fair rental

price.

If you did not use the unit as a home, you can deduct all your

expenses for the rental part, subject to the at-risk rules and the

passive activity loss rules, explained earlier.

If you did use the unit as a home and rented the unit out for

fewer than 15 days in 2025, do not report the rental income and

do not deduct any rental expenses. If you itemize deductions on

Schedule A, you can deduct allowable interest, taxes, and

casualty losses.

If you did use the unit as a home and rented the unit out for 15

or more days in 2025, you may not be able to deduct all your

rental expenses. See Pub. 527 for more information.

Regardless of whether you used the unit as a home,

expenses related to days of personal use do not qualify

CAUTION as rental expenses. You must allocate your expenses

based on the number of days of personal use to total use of the

property. For example, you used your property for personal use

for 7 days and rented it for 63 days. In most cases, 10% (7 ÷ 70)

of your expenses are not rental expenses and cannot be

deducted on Schedule E.

!

Self-rental. Enter code “7” for self-rental if you rent property to a

trade or business in which you materially participated. See

Rental of Property to a Nonpassive Activity in Pub. 925 for

details about the tax treatment of income from this type of rental

property.

QJV. Check the box for “QJV” if you owned the property as a

member of a QJV reporting income not subject to

self-employment tax. See Qualified Joint Venture (QJV), earlier.

Other. Enter code “8” if the property is not one of the other types

listed on the form. Attach a statement to your return describing

the property.

If you received rental income from real estate (including personal

property leased with real estate), report the income on line 3.

Use a separate column (A, B, or C) for each rental property.

Include income received for renting a room or other space.

Line 2

If you rented out a dwelling unit that you also used for personal

purposes during the year, you may not be able to deduct all the

expenses for the rental part. “Dwelling unit” (unit) means a

house, apartment, condominium, mobile home, boat, or similar

property.

For each property listed on line 1a, report the number of days

in the year each property was rented at fair rental value and the

number of days of personal use.

A day of personal use is any day, or part of a day, that the unit

was used by:

• You for personal purposes;

• Any other person for personal purposes, if that person owns

part of the unit (unless rented to that person under a “shared

equity” financing agreement);

Line 3

Any other income should be included and reported on line 3,

with a statement attached to your return.

If you received services or property instead of money as rent,

report the fair market value of the services or property as rental

income on line 3.

Generally, rental real estate activity is reported on Schedule E

even if it is also a trade or business activity; however, if you

provided significant services to the renter, such as maid service,

report the rental activity on Schedule C, not on Schedule E.

Significant services do not include the furnishing of heat and

light, cleaning of public areas, trash collection, or similar

services.

If you were a real estate dealer, include only the rent received

from real estate (including personal property leased with this real

5

estate) you held for the primary purpose of renting to produce

income. Do not use Schedule E to report income and expenses

from rentals of real estate you held for sale to customers in the

ordinary course of your business as a real estate dealer. Instead,

use Schedule C for those rentals.

For more details on rental income, see Pub. 527.

Rental income from farm production or crop shares. Report

farm rental income and expenses on Form 4835 if:

• You are an individual,

• You received rental income based on crops or livestock

produced by the tenant, and

• You did not materially participate in the management or

operation of the farm.

Line 4

Report on line 4 royalties from oil, gas, or mineral properties (not

including operating interests); copyrights; name, image, and

likeness (NIL) rights (such as licensing and merchandising

agreements); and patents. Use a separate column (A, B, or C)

for each royalty property.

If you received $10 or more in royalties during 2025, the payer

should send you a Form 1099-MISC or similar statement by

January 31, 2026, showing the amount you received. Report this

amount on line 4.

If you are in business as a self-employed writer, inventor,

artist, etc., report your royalty income and expenses on

Schedule C, not on Schedule E.

If you are a student-athlete, any monetary or financial gain,

including non-cash compensation like merchandise or gift cards,

you received from a transaction in which you benefit from the use

of your name, image, or likeness is NIL income. If your NIL

income is derived from business activities such as sponsorship

deals or service income, report your income and expenses on

Schedule C, not Schedule E. However, if your NIL income is

royalty income that is not self-employment income, report the

NIL royalty income and expenses on Schedule E.

You may be able to treat amounts received as “royalties” for

the transfer of a patent or amounts received on the disposal of

coal and iron ore as the sale of a capital asset. For details, see

Pub. 544.

Enter on line 4 the gross amount of royalty income, even if

state or local taxes were withheld from oil or gas payments you

received. Include taxes withheld by the producer on line 16.

General Instructions for Lines 5 Through 21

Enter your rental and royalty expenses for each property in the

appropriate column. You can deduct all ordinary and necessary

expenses, such as taxes, interest, repairs, insurance,

management fees, agents’ commissions, and depreciation.

Do not deduct the value of your own labor or amounts paid for

capital investments or capital improvements.

Enter your total expenses for mortgage interest (line 12),

depreciation expenses and depletion (line 18), and total

expenses (line 20) on lines 23c through 23e, respectively, even if

you have only one property.

Renting out part of your home. If you rent out only part of your

home or other property, deduct the part of your expenses that

applies to the rented part.

Credit or deduction for access expenditures. You may be

able to claim a tax credit for eligible expenditures paid or

incurred in 2025 to provide access to your business for

individuals with disabilities. See Form 8826 for details.

6

You can also elect to deduct up to $15,000 of qualified costs

paid or incurred in 2025 to remove architectural or transportation

barriers to individuals with disabilities and the elderly.

You cannot take both the credit and the deduction for the

same expenditures.

Line 6

You can deduct ordinary and necessary auto and travel

expenses related to your rental activities, including 50% of meal

expenses incurred while traveling away from home.

In most cases, you can either deduct your actual expenses or

take the standard mileage rate. You must use actual expenses if

you used more than four vehicles simultaneously in your rental

activities (as in fleet operations). You cannot use actual

expenses for a leased vehicle if you previously used the

standard mileage rate for that vehicle.

You can use the standard mileage rate for 2025 only if you:

• Owned the vehicle and used the standard mileage rate for the

first year you placed the vehicle in service; or

• Leased the vehicle and are using the standard mileage rate

for the entire lease period (except the period, if any, before

1998).

If you take the standard mileage rate, multiply the number of

miles driven in connection with your rental activities by 70 cents

a mile. Include this amount and your parking fees and tolls on

line 6.

You cannot deduct rental or lease payments,

depreciation, or your actual auto expenses if you use the

CAUTION standard mileage rate.

!

If you deduct actual auto expenses:

• Include on line 6 the rental activity portion of the cost of

gasoline, oil, repairs, insurance, tires, license plates, etc.; and

• Show auto rental or lease payments on line 19 and

depreciation on line 18.

If you claim any auto expenses (actual or the standard

mileage rate), you must complete Part V of Form 4562 and

attach Form 4562 to your tax return.

See Pub. 527 and Pub. 463 for details.

If you use your vehicle for both business and personal

purposes and you claimed a deduction in 2025 on

CAUTION Schedule 1-A (Form 1040) for the vehicle loan interest

allocable to your personal use, then you can’t claim a deduction

for that same interest on Schedule E. See Schedule 1-A (Form

1040) and its instructions for more information.

!

Line 10

Include on line 10 fees for tax advice and the preparation of tax

forms related to your rental real estate or royalty properties.

Do not deduct legal fees paid or incurred to defend or protect

title to property, to recover property, or to develop or improve

property. Instead, you must capitalize these fees and add them

to the property’s basis.

Lines 12 and 13

In most cases, to determine the interest expense allocable to

your rental activities, you must have records to show how the

proceeds of each debt were used. Specific tracing rules apply for

allocating debt proceeds and repayment. In general, you allocate

interest on a loan the same way you allocate the loan proceeds.

You allocate loan proceeds by tracing disbursements to specific

uses.

The easiest way to trace disbursements to specific uses

TIP is to keep the proceeds of a particular loan separate

from any other funds.

Limitation on business interest. Interest you paid as part of

your rental real estate activity is not subject to the limitation on

business interest unless your rental real estate activity is a trade

or business. If your rental real estate activity is a trade or

business, you must file Form 8990 to deduct any interest

expenses of that rental real estate activity unless you meet one

of the filing exceptions in the Instructions for Form 8990.

If the interest you paid in your rental real estate trade or

business is limited, figure the limit on your business interest

expenses on Form 8990 before completing lines 12 and 13.

Follow the instructions under How to report, later, but report the

reduced interest on lines 12 and 13. The interest you can’t

deduct this year will carry forward to next year on Form 8990.

If your real estate activity is not a trade or business or you

meet one of the filing exceptions for Form 8990, follow the

instructions under How to report, later, and report all of your

deductible interest on lines 12 and 13.

How to report. If you have a mortgage on your rental property,

enter on line 12 the amount of interest you paid for 2025 to banks

or other financial institutions.

Do not deduct prepaid interest when you paid it. You can

deduct it only in the year to which it is properly allocable. Points,

including loan origination fees, charged only for the use of

money must be deducted over the life of the loan.

If you paid $600 or more in interest on a mortgage during

2025, the recipient should send you a Form 1098 or similar

statement by January 31, 2026, showing the total interest

received from you.

If you paid more mortgage interest than is shown on your

Form 1098 or similar statement, see Pub. 334 regarding

deduction limits to find out if you can deduct part or all of the

additional interest. If you can, enter the entire deductible amount

on line 12. Attach a statement to your return explaining the

difference. In the space to the left of line 12, enter “See

attached.”

Note: If the recipient was not a financial institution or you did not

receive a Form 1098 from the recipient, report your deductible

mortgage interest on line 13.

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 Form 1098, report your

share of the deductible interest on line 13. Attach a statement to

your return showing the name and address of the person who

received Form 1098. On the dotted line next to line 13, enter

“See attached.”

If you use your vehicle for both business and personal

purposes and you claimed a deduction in 2025 on

CAUTION Schedule 1-A (Form 1040) for the vehicle loan interest

allocable to your personal use, then you can’t claim a deduction

for that same interest on Schedule E. See Schedule 1-A (Form

1040) and its instructions for more information.

!

Line 14

replacing an entire HVAC system. Amounts paid to improve your

property must generally be capitalized and depreciated (that is,

they cannot be deducted in full in the year they are paid or

incurred). See Line 18, later.

Line 17

You can deduct the cost of ordinary and necessary telephone

calls related to your rental activities or royalty income (for

example, calls to the renter). However, the base rate (including

taxes and other charges) for local telephone service for the first

telephone line into your residence is a personal expense and is

not deductible.

Line 18

Depreciation is the annual deduction you must take to recover

the cost or other basis of business or investment property having

a useful life substantially beyond the tax year. Land is not

depreciable.

Depreciation starts when the property is available and ready

for use in your business or for the production of income. It ends

when you deduct all your depreciable cost or other basis or no

longer use the property in your business or for the production of

income.

See the Instructions for Form 4562 to figure the amount of

depreciation to enter on line 18.

You must complete and attach Form 4562 only if you are

claiming:

• Depreciation on property first placed in service during 2025;

• Depreciation on listed property (defined in the Instructions for

Form 4562), including a vehicle, regardless of the date it was

placed in service; or

• A section 179 expense deduction or amortization of costs that

began in 2025.

See Pub. 527 for more information on depreciation of

residential rental property. See Pub. 946 for a more

comprehensive guide to depreciation.

If you have an economic interest in mineral property, you may

be able to take a deduction for depletion. Mineral property

includes oil and gas wells, mines, and other natural deposits

(including geothermal deposits). See section 614 and the related

regulations for rules on how to treat separate mineral interests.

Separating cost of land and buildings. If you buy buildings

and your cost includes the cost of the land on which they stand,

you must divide the cost between the land and the buildings to

figure the basis for depreciation of the buildings. The part of the

cost that you allocate to each asset is the ratio of the fair market

value of that asset to the fair market value of the whole property

at the time you buy it.

If you are not certain of the fair market values of the land and

the buildings, you can divide the cost between them based on

their assessed values for real estate tax purposes.

Line 19

Enter on line 19 any ordinary and necessary expenses not listed

on lines 5 through 18.

You can deduct the amounts paid for repairs and maintenance.

However, you cannot deduct the cost of improvements. Repairs

and maintenance costs are those costs that keep the property in

an ordinarily efficient operating condition. Examples are fixing a

broken lock or painting a room.

You may be able to deduct, on line 19, part or all of the cost of

energy efficient commercial building property and energy

efficient building retrofit property placed in service during the tax

year. For details, see section 179D, Form 7205 and its separate

instructions, and Rev. Proc. 2024-23, 2024-24 I.R.B. 580,

available at Rev. Proc. 2024-23.

In contrast, improvements are amounts paid to better or

restore your property or adapt it to a new or different use.

Examples of improvements are adding substantial insulation or

If you have amounts for which you are not at risk, use Form 6198

to determine the amount of your deductible loss. Enter that

Line 21

7

amount in the appropriate column of Schedule E, line 21. In the

space to the left of line 21, enter “Form 6198.” Attach Form 6198

to your return. For details on the at-risk rules, see At-Risk Rules,

earlier.

Line 22

Do not complete line 22 if the amount on line 21 is from royalty

properties.

If you have a rental real estate loss from a passive activity

(defined earlier), the amount of loss you can deduct may be

limited by the passive activity loss rules. You may need to

complete Form 8582 to figure the amount of loss, if any, to enter

on line 22. See the Instructions for Form 8582 to determine if

your loss is limited.

If your rental real estate loss is not from a passive activity or

you meet the exception for certain rental real estate activities

(explained earlier), you do not have to complete Form 8582.

Enter the (loss) from line 21 on line 22.

If you have an unallowed rental real estate loss from a prior

year that after completing Form 8582 you can include this year,

include that loss on line 22.

Parts II and III

If you need more space in Part II or III to list your income or

losses, attach a continuation sheet using the same format as

shown in Part II or III. However, be sure to complete the “Totals”

columns for lines 29a and 29b, or lines 34a and 34b, as

appropriate. If you also completed Part I on more than one

Schedule E, use the same Schedule E on which you entered the

combined totals in Part I.

Tax preference items. If you are a partner, a shareholder in an

S corporation, or a beneficiary of an estate or trust, you must

take into account your share of preferences and adjustments

from these entities for the alternative minimum tax on Form 6251

or Schedule I (Form 1041).

Part II

Income or Loss From Partnerships and S

Corporations

If you are a member of a partnership or joint venture or a

shareholder in an S corporation, use Part II to report your share

of the partnership or S corporation income (even if not received)

or loss.

!

If you elected to be taxed as a QJV instead of a

partnership, follow the reporting rules under QJV, earlier.

CAUTION

You should receive a Schedule K-1 from the partnership or S

corporation. You should also receive a copy of the Partner’s or

Shareholder’s Instructions for Schedule K-1. Your copy of

Schedule K-1 and its instructions will tell you where on your

return to report your share of the items. If you did not receive

these instructions with your Schedule K-1, see your tax return

instructions for how to get tax forms, instructions, and

publications. Do not attach Schedules K-1 to your return. Keep

them for your records.

If you are treating items on your tax return differently from the

way the partnership or S corporation reported them on its return,

you may have to file Form 8082.

Special Rules That Limit Losses

If you report a loss from a partnership or S corporation, your loss

may be reduced or not allowed this year. Apply the basis rules,

8

at-risk rules, and passive activity loss rules to your loss on

Schedule E.

If your loss is also subject to the excess business loss rules,

you figure that limitation separately on Form 461. Any reduction

to your loss due to the excess business loss rules will not be

reflected on your Schedule E. See the Instructions for Form 461

for more information.

Basis rules for partnerships. Generally, you may not claim

your share of a partnership loss (including a capital loss) to the

extent that it is greater than the adjusted basis of your

partnership interest at the end of the partnership’s tax year. Any

losses and deductions not allowed this year because of the

basis limit can be carried forward indefinitely and deducted in a

later year subject to the basis limit for that year. To figure the

basis of your interest in a partnership, you can use the

Worksheet for Adjusting the Basis of a Partner’s Interest in the

Partnership in the Partner’s Instructions for Schedule K-1 (Form

1065). For more details on the basis rules for partnerships, see

Pub. 541.

If you had a loss from a partnership that was not allowed last

year because of the basis rules, but all or part is allowed this

year, see Line 27, later, for how to report it.

After applying the basis rules, the loss you report on

Schedule E may be further reduced by the at-risk rules and

passive activity loss rules.

Basis rules for S corporations. Generally, the deduction for

your share of aggregate losses and deductions reported on

Schedule K-1 (Form 1120-S) is limited to the basis of your stock

(determined with regard to distributions received during the tax

year) and loans from you to the corporation. The basis of your

stock is generally figured at the end of the corporation’s tax year.

Any losses and deductions not allowed this year because of the

basis limit can be carried forward indefinitely and deducted in a

later year subject to the basis limit for that year. To figure your

aggregated stock basis, you can generally use Form 7203. For

more details on the basis rules for S corporations, see the

Instructions for Form 7203.

If you are claiming a deduction for your share of an aggregate

loss (or you receive a distribution, dispose of stock, or receive a

loan repayment from an S corporation), check the box on the

appropriate line in Part III, column (e), and attach Form 7203 to

your return.

If you had a loss from an S corporation that was not allowed

last year because of the basis rules, but all or part is allowed this

year, see Line 27, later, for how to report it.

After applying the basis rules, the loss you report on

Schedule E may be further reduced by the at-risk rules and

passive activity loss rules.

At-risk rules. If you have (a) a loss or other deduction from any

activity carried on as a trade or business or for the production of

income by the partnership or S corporation, and (b) amounts in

the activity for which you are not at risk, your loss may be limited.

For more information, see At-Risk Rules, earlier.

If you are subject to the at-risk rules for any activity, check the

box on the appropriate line in Part II, column (f), of Schedule E,

and use Form 6198 to figure the amount of any deductible loss. If

the activity is nonpassive, enter any deductible loss from Form

6198 on the appropriate line in Part II, column (i), of Schedule E.

If you had a loss from the partnership or S corporation that

was not allowed last year because of the at-risk rules, but all or

part is allowed this year, see Line 27, later, for how to report it.

After applying the at-risk rules, the loss you report on

Schedule E may be further reduced by the passive activity loss

rules.

Passive activity loss rules. For more information about

passive activity losses, see Passive Activity Loss Rules, earlier.

If you have a passive activity loss, in most cases you need to

complete Form 8582 to figure the amount of the loss to enter in

Part II, column (g), for that activity. But if you are a general

partner or an S corporation shareholder reporting your share of a

partnership or an S corporation loss from a rental real estate

activity and you meet all of the conditions listed earlier under

Exception for Certain Rental Real Estate Activities, you do not

have to complete Form 8582. Instead, enter your (loss) in Part II,

column (g).

If you have passive activity income, complete Part II, column

(h), for that activity. If you have nonpassive income or losses,

complete Part II, columns (i) through (k), as appropriate.

If you had a loss from the partnership or S corporation that

was not allowed last year because of the passive activity loss

rules, but all or part is allowed this year, see Line 27, later, for

how to report it.

Excess business loss rules. If you report a loss on

Schedule E from a partnership or S corporation engaged in a

trade or business, use Form 461 to figure your excess business

loss. Your excess business loss will not be reflected on your

Schedule E; instead, it will be added to your income on Form

1040 and carried forward to a subsequent year as a net

operating loss. For more information, see the Instructions for

Form 461.

Domestic Partnerships

See the Schedule K-1 instructions before entering on your return

other partnership items from a passive activity or income or loss

from any publicly traded partnership.

You can deduct unreimbursed ordinary and necessary

expenses you paid on behalf of the partnership if you were

required to pay these expenses under the partnership

agreement. See Line 27, later, for how to report these expenses.

If you used loan proceeds to buy an interest in, or make a

contribution to the capital of, a partnership (debt-financed

acquisition), report your share of deductible partnership interest

expense on either Schedule A or Schedule E, depending on the

type of asset (or expenditure if the allocation is based on the

tracing of loan proceeds) to which the interest expense is

allocated. See Line 28, later, for more information about

reporting these interest expenses.

If you claimed a credit for federal tax on gasoline or other

fuels on your 2024 Form 1040, 1040-SR, or 1040-NR based on

information received from the partnership, enter as income in

column (h) or column (k), whichever applies, the amount of the

credit claimed for 2024.

Part or all of your share of partnership income or loss from the

operation of the business may be considered net earnings from

self-employment that must be reported on Schedule SE. Enter

the amount from Schedule K-1 (Form 1065), box 14, code A, on

Schedule SE after you reduce this amount by any allowable

expenses attributable to that income.

Foreign Partnerships

Follow the instructions below in addition to the instructions

earlier under Domestic Partnerships.

If you are a U.S. person, you may have received Forms

1099-B, 1099-DIV, and 1099-INT reporting your share of certain

partnership income because payors of income to the foreign

partnership in most cases are required to allocate and report

payments of that income directly to each of the partners of the

foreign partnership. If you received both Schedule K-1 and Form

1099 for the same type and source of partnership income, report

on Schedule E only the income shown on Schedule K-1 in

accordance with its instructions.

If you are not a U.S. person, you may have received Forms

1042-S reporting your share of certain partnership income

because payors of income to the foreign partnership in most

cases are required to allocate and report payments of that

income directly to each of the partners of the foreign partnership.

If you received both Schedule K-1 and Form 1042-S for the

same type and source of partnership income, report the income

on your return as follows.

• For all income effectively connected with the conduct of a

trade or business in the United States, report only the income

shown on Schedule K-1 in accordance with its instructions.

• For all income not effectively connected with the conduct of a

trade or business in the United States, report on Schedule NEC

(Form 1040-NR) only the income shown on Form 1042-S (if you

are required to file Form 1040-NR).

Requirement to file Form 8865. If you are a U.S. person, you

may have to file Form 8865 if any of the following applies.

1. You controlled a foreign partnership (that is, you owned

more than a 50% direct or indirect interest in the partnership).

2. You owned at least a 10% direct or indirect interest in a

foreign partnership while U.S. persons controlled that

partnership.

3. You had an acquisition, disposition, or change in

proportional interest of a foreign partnership that:

a. Increased your direct interest to at least 10% or reduced

your direct interest of at least 10% to less than 10%, or

b. Changed your direct interest by at least a 10% interest.

4. You contributed property to a foreign partnership in

exchange for a partnership interest if:

a. Immediately after the contribution, you owned, directly or

indirectly, at least a 10% interest in the partnership; or

b. The value of the property you contributed, when added to

the value of any other property you or any related person

contributed to the partnership during the 12-month period ending

on the date of transfer, exceeds $100,000.

Also, you may have to file Form 8865 if you contributed

property with built-in gain to a foreign partnership (or certain

domestic partnerships) or to report certain dispositions by a

foreign partnership of property you previously contributed to that

partnership if you were a partner at the time of the disposition.

For more details, including penalties for failing to file Form

8865, see Form 8865 and its separate instructions.

S Corporations

Distributions of prior-year accumulated earnings and profits of S

corporations are dividends and are reported on Form 1040 or

1040-SR, line 3b.

If you used loan proceeds to buy an interest in, or make a

contribution to the capital of, an S corporation (debt-financed

acquisition), report your share of deductible S corporation

interest expense on either Schedule A or Schedule E, depending

on the type of asset (or expenditure if the allocation is based on

the tracing of loan proceeds) to which the interest expense is

allocated. See Line 28, later, for more information about

reporting these interest expenses.

9

Your share of the net income of an S corporation is not

subject to self-employment tax.

Line 27

If you answered “Yes” on line 27, follow the instructions below. If

you do not follow these instructions, the IRS may send you a

notice of additional tax due because the amounts reported by

the partnership or S corporation on Schedule K-1 do not match

the amounts you reported on your tax return.

Losses Not Allowed in Prior Years Due to the Basis

or At-Risk Rules

• Enter your total prior-year unallowed losses that are now

deductible on a separate line in column (i) of line 28. Do not

combine these losses with, or net them against, any current-year

amounts from the partnership or S corporation.

• Enter “PYA” in column (a) of the same line.

Prior-Year Unallowed Losses From a Passive

Activity Not Reported on Form 8582

• Enter on a separate line in column (g) of line 28 your total

prior-year unallowed losses not reported on Form 8582. Such

losses include prior-year unallowed losses now deductible

because you did not have an overall loss from all passive

activities or you disposed of your entire interest in a passive

activity in a fully taxable transaction. Do not combine these

losses with, or net them against, any current-year amounts from

the partnership or S corporation.

• Enter “PYA” in column (a) of the same line.

Unreimbursed Partnership Expenses

You can deduct unreimbursed ordinary and necessary

partnership expenses you paid on behalf of the partnership on

Schedule E if you were required to pay these expenses under

the partnership agreement. You can only deduct unreimbursed

expenses on Schedule E that are trade or business expenses

under section 162. Don’t report unreimbursed partnership

expenses separately if the expenses are from a passive activity

and you are required to file Form 8582; otherwise, do the

following.

• Enter unreimbursed partnership expenses from nonpassive

activities on a separate line in column (i) of line 28. Do not

combine these expenses with, or net them against, any other

amounts from the partnership.

• If the expenses are from a passive activity and you are not

required to file Form 8582, enter the expenses related to a

passive activity on a separate line in column (g) of line 28. Do not

combine these expenses with, or net them against, any other

amounts from the partnership.

• Enter “UPE” in column (a) of the same line.

Gambling Income and Losses From Partnerships

If the partnership was engaged in the trade or business of

gambling, report gambling winnings on Schedule E (Form 1040),

line 28, column (k); and deduct gambling losses on Schedule E

(Form 1040), line 28, column (i). Gambling losses from the

partnership can only be claimed on Schedule E to the extent

that, when combined with gambling losses from other sources

(including other gambling losses reported on Schedule E (Form

1040) and gambling losses reported on Schedule A (Form 1040)

or Schedule C (Form 1040)), they do not exceed all gambling

winnings reported on your tax return (including, without

limitation, winnings reported on

10

• Schedule 1 (Form 1040), line 8b;

• Schedule C (Form 1040);

• Schedule E (Form 1040)

See the Instructions for Schedule K-1 (Form 1065) for more

information.

Note: If the partnership wasn’t engaged in the trade or

business of gambling, report gambling winnings on Schedule 1

(Form 1040), and deduct gambling losses to the extent of

winnings on Schedule A (Form 1040).

Line 28

For nonpassive income or loss and passive income or losses for

which you are not filing Form 8582, enter in the applicable

column of line 28 your current-year ordinary income or loss (after

applying any special rules that limit losses) from the partnership

or S corporation. Report each related item required to be

reported on Schedule E (including items of income or loss stated

separately on Schedule K-1) in the applicable column of a

separate line following the line on which you reported the

current-year ordinary income or loss. Also, enter a description of

the related item (for example, depletion) in column (a) of the

same line.

If you are required to file Form 8582, see the Instructions for

Form 8582 before completing Schedule E.

Debt-financed acquisition. A debt-financed acquisition is the

use of loan proceeds to buy an interest in, or to make a

contribution to the capital of, a partnership or S corporation. You

must allocate the loan proceeds and the related interest expense

among all the assets of the entity. You can use any reasonable

method.

For interest allocated to trade or business assets (or

expenditures), report the interest on a separate line of your

Schedule E, Part II. Enter “business interest” and the name of the

partnership or S corporation in column (a) and the amount in

column (i).

For interest allocated to passive activity use, enter the interest

on Form 8582 as a deduction from the passive activity of the

partnership or S corporation. Show any deductible amount on a

separate line on your Schedule E, Part II. Enter “passive interest”

and the name of the entity in column (a) and the amount in

column (g).

For interest allocated to investment use, enter the interest on

Form 4952. Carry any deductible amount allocated to royalties to

a separate line of your Schedule E, Part II. Enter “investment

interest” and the name of the entity in column (a) and the amount

in column (i). Carry the balance of the deductible amount to

Schedule A, line 9.

Any interest allocated to proceeds used for personal

purposes is generally not deductible.

For more information on allocating and reporting these

interest expenses, see Notice 88-37 in Cumulative Bulletin

1988-1. Also, see Notice 89-35 in Cumulative Bulletin 1989-1.

Owners of S corporation stock and debt. If you report a loss,

receive a distribution, dispose of stock, or receive a loan

repayment from an S corporation, you must check the box in

column (e) on line 28 and attach the required basis computation.

For more information, see Basis rules for S corporations, earlier.

Part III

Income or Loss From Estates and Trusts

If you are a beneficiary of an estate or trust, use Part III to report

your part of the income (even if not received) or loss. You should

receive a Schedule K-1 (Form 1041) from the fiduciary. Your

copy of Schedule K-1 and its instructions will tell you where on

your return to report the items from Schedule K-1 . Do not attach

Schedule K-1 to your return. Keep it for your records.

If you are treating items on your tax return differently from the

way the estate or trust reported them on its return, you may have

to file Form 8082.

If you have estimated taxes credited to you from a trust

(Schedule K-1 (Form 1041), box 13, code A), enter “ES payment

claimed” and the amount on the dotted line next to line 37. Do

not include this amount in the total on line 37. Instead, enter the

amount on Form 1040, 1040-SR, or 1040-NR, line 26.

A U.S. person who transferred property to a foreign trust may

have to report the income received by the trust as a result of the

transferred property if, during 2025, the trust had a U.S.

beneficiary. See section 679. An individual who received a

distribution from, or who was the grantor of, or transferor to, a

foreign trust must also complete Part III of Schedule B (Form

1040) and may have to file Form 3520. In addition, the owner of a

foreign trust must ensure that the trust files an annual information

return on Form 3520-A.

Part IV

Income or Loss From Real Estate Mortgage

Investment Conduits (REMICs)

If you are the holder of a residual interest in a REMIC, use Part IV

to report your total share of the REMIC’s taxable income or loss

for each quarter included in your tax year. You should receive

Schedule Q (Form 1066) and instructions from the REMIC for

each quarter. Do not attach Schedule(s) Q to your return. Keep it

for your records.

If you are treating REMIC items on your tax return differently

from the way the REMIC reported them on its return, you may

have to file Form 8082.

If you are the holder of a residual interest in more than one

REMIC, attach a continuation sheet using the same format as in

Part IV. Enter the combined totals of columns (d) and (e) on

Schedule E, line 39. If you also completed Part I on more than

one Schedule E, use the same Schedule E on which you entered

the combined totals in Part I.

REMIC income or loss is not income or loss from a passive

activity.

Note: If you are the holder of a regular interest in a REMIC, do

not use Schedule E to report the income you received. Instead,

report it on Form 1040 or 1040-SR, line 2b.

Column (c). Report the total of the amounts shown on

Schedule(s) Q (Form 1066), line 2c. This is the smallest amount

you are allowed to report as your taxable income (Form 1040,

1040-SR, or 1040-NR, line 15). It is also the smallest amount

you are allowed to report as your alternative minimum taxable

income (AMTI) on Form 6251, line 4.

If the amount in column (c) is larger than your taxable income

would otherwise be, enter the amount from column (c) on Form

1040, 1040-SR, or 1040-NR, line 15. Similarly, if the amount in

column (c) is larger than your AMTI would otherwise be, enter

the amount from column (c) on Form 6251, line 4. Enter “Sch Q”

on the dotted line to the left of this amount on Form 1040,

1040-SR, or 1040-NR, line 15; and Form 6251, line 4, if

applicable.

Note: These rules also apply to estates and trusts that hold a

residual interest in a REMIC. Be sure to make the appropriate

entries on the comparable lines on Form 1041.

!

Do not include the amount shown in column (c) in the

total on Schedule E, line 39.

CAUTION

Column (e). Report the amount(s) shown on Schedule(s) Q

(Form 1066), line 3b.

Part V Summary

Line 42

Special estimated tax rules may apply if you have gross farming

or fishing income. You will not be charged a penalty for

underpayment of estimated tax if:

1. Your gross farming or fishing income for 2024 or 2025 is

at least two-thirds of your gross income; and

2. You file your 2025 tax return and pay the tax due by March

2, 2026.

For details, see chapter 15 of Pub. 225.

Paperwork Reduction Act Notice. We ask for you to obtain

the information on this form to carry out the Internal Revenue

laws of the United States. You are required to obtain this

information.

You are not required to obtain the information requested on a

form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form, or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return

information are confidential, as required by Internal Revenue

Code section 6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated burden

for individual filers is approved under OMB control number

1545-0074. The estimated burden for estate and trust filers is

approved under OMB control number 1545-0092. For the

estimated averages, see the instructions for your income tax

return.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the instructions for the tax return

with which this form is filed.

11