• Rents and royalties are reported on a tax return using a Schedule E. The total of all Schedule Es goes to Schedule 1 Line 5.  An in-scope Schedule E has only income.
    • If the taxpayer wants to claim associated expenses on Schedule E, the return is out-of-scope.
  • If rent or royalty income was reported on a Schedule K-1:
  • If rent or royalty income is reported on a Form 1099-MISC, that income is not entered directly on Schedule E. Instead, enter on Form 1099-MISC, reached from the main Income page in the Federal Section.
    • If income reported in box 2, “Royalties”, is due to the taxpayer’s own personal services, such as being an author or entertainer, then the income belongs on a Schedule C, not a Schedule E. Enter the amount in TaxSlayer as if the amount had been in box 1 of a 1099-NEC (yes, use a different form in TaxSlayer).
      • Note: On Schedule C, business code 711510 is for “Independent artists, writers, & performers”
    • If there are dollar amounts in any boxes other than box 1, “Rents”, and box 2, “Royalties”, then see the section Form 1099-MISC on page 55 for how to handle those amounts.
    • Note: In the unlikely event that a Form 1099-MISC is received when the taxpayer has rented for less than 15 days during the year, see “Reversing a Form 1099-MISC”, below.
  • Cash payments for rent (“cash” includes checks and credit cards) for which there is no Form 1099-MISC may be in-scope; there can’t be any associated expenses.
    • Rental of land (for farming, camping, a pipeline, etc.) is in-scope.
      • The IRS allows related property taxes to go onto Schedule E, but doing so would make the return out-of-scope for the Tax-Aide program. Such property taxes are in-scope if claimed on Schedule A.
  • Note: Farm rental income which is based on crops or livestock produced by the tenant (share-rent) requires either Form 4835, Farm Rental Income and Expenses, or Schedule F; using either form means that the return is out-of-scope.
    • Rental income involving buildings, even for an apartment over a garage or a room in a home, makes the return out-of-scope (but see notes 1 and 2, below) because such income always involves the associated expense of depreciation, even if not claimed. (When depreciation is involved, the taxpayer is almost always better off using a paid preparer or tax software to claim depreciation.)
      • Note 1: As described in Chapter 5 of Pub 527, Residential Rental Property, if a taxpayer’s home is rented for less than 15 days during the tax year, such rental income can be excluded from their return.
      • Note 2: Rental income from sources such as a home is in-scope only for military returns, with Military certification.
      • Note 3:  Income from sharing one’s house through Airbnb and similar companies may or may not be rental income (in some cases it is business income, reported on Schedule C). This is not a determination to be made by a preparer. Unless the total days involved is less than 15, the return is out-of-scope.
    • Income from renting things that one owns, other than a home, should be reported on Schedule C, not Schedule E.
    • A cost-sharing agreement, where a roommate pays the taxpayer, who in turn pays a landlord; or where a member of the taxpayer’s household contributes money toward the cost of maintaining the home, is not rental income.
  • If there is in-scope rental or royalty income, as discussed above, Schedule E is needed. Go to the Income menu page in the Federal Section, and click “Schedule E.”
    • On the Schedule E Required Information page, if the box regarding Forms 1099, such as Form 1099-MISC, must be checked, then the return is out-of-scope. (Otherwise, click “Continue”.)
    • TaxSlayer then goes to the Schedule E Rent and Royalty Information page.
    • The “Type” field determines what information is required. If “Royalties” is the type, then address information is not required.
    • Rental or royalty income received on Form 1099-MISC is entered separately, as discussed above on page  55, and should not be included in either rental or royalty income amounts which are entered directly on the Schedule E form in TaxSlayer. 
      • This is true even though, for royalties, the “Royalty payments received” field does not explicitly say to exclude income reported on a Form 1099-MISC.
    • Similarly, royalty payments on a Schedule K-1 form are entered separately in TaxSlayer, as described above on page 62, and should not be entered directly on Schedule E.
    • Cash payments for rent or royalties should be entered on the field “Rental payments received” (or “Royalty payments received”).
    • For rents, enter the type (as discussed above, anything but “Land” is probably out-of-scope), the property address (not the taxpayer’s address), the number of days the property was rented at fair rental value, and the number of personal use days.
      • The presumption is that whatever price is normally charged is the fair rental value. But, for example, if the rental price were reduced for a friend or family member, or as a favor to someone, then that would not be counted as a regular rental day. (The income from all days is reported, whether the fair rental value is charged or not.)
      • “Personal use days” are days on which an owner resided on the property, regardless of the reason (such as for maintenance or to make improvements).
    • It isn’t necessary to determine if the taxpayer “actively participated” nor to check the related box.
    • After the Schedule E Rent and Royalty Information page is done, and “Continue” is clicked, TaxSlayer goes to the Schedule E Rentals and Royalties menu page. Click “Continue.”
      • Expenses on a Schedule E are out-of-scope, except for active-duty military members, so there’s no reason to select “Depreciation”, “Expenses”, or “Car and Truck Expenses.”
  • Reversing a Form 1099-MISC: If a taxpayer’s home is rented for less than 15 days during the tax year, such rental income can be totally excluded from their tax return. In the unlikely event that Form 1099-MISC is received, enter the Form 1099-MISC in TaxSlayer, to match IRS records; create a Schedule E to record the rental income; then on that Schedule E, enter a matching amount as an Additional Expense, labeled “Less than 15-day exclusion”, so that net income on the schedule is zero.

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