U.S. Income Tax Return for Estates and Trusts

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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

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

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

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Standard mileage rate. The standard mileage rate for miles
driven in connection with your rental activities increased to 70
cents a mile for 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.

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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

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• 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.

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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

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).

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

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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.

More information. For more details about the at-risk rules, see
the Instructions for Form 6198 and Pub. 925.

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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.

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

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

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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.

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.

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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.

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.

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

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Income you report on Schedule E may be qualified

TIP business income and entitle you to a deduction on Form

• 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.

TREASURY/IRS AND OMB USE ONLY DRAFT
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 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

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.

!

CAUTION

You cannot deduct rental or lease payments,
depreciation, or your actual auto expenses if you use the
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.

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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.

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.

TREASURY/IRS AND OMB USE ONLY DRAFT
The easiest way to trace disbursements to specific uses

TIP is to keep the proceeds of a particular loan separate
from any other funds.

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

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

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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.

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.

TREASURY/IRS AND OMB USE ONLY DRAFT
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.

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

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.

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Parts II and III

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

TREASURY/IRS AND OMB USE ONLY DRAFT

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

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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.

TREASURY/IRS AND OMB USE ONLY DRAFT
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.

• 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

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

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Prior-Year Unallowed Losses From a Passive
Activity Not Reported on Form 8582

• Schedule 1 (Form 1040), line 8b;
• Schedule C (Form 1040);
• Schedule E (Form 1040)

TREASURY/IRS AND OMB USE ONLY DRAFT
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.

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.

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

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Part IV

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.