i1040_schedule_e--2021-00-00

Department of the Treasury
Internal Revenue Service

2021 Instructions for Schedule E
Supplemental
Income and Loss

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).

Section references are to the Internal
Revenue Code unless otherwise noted.

ule E. Instead, use Form 461 to determine the amount of your excess business
loss, which will be included as income
on Schedule 1 (Form 1040), line 8o.
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.
Paycheck Protection Program (PPP)
Safe Harbor. Rev. Proc. 2021-20 has
allowed for a safe harbor for certain taxpayers who did not deduct certain otherwise deductible expenses paid or incurred during the tax year(s) ending after
March 26, 2020, and on or before December 31, 2020, that resulted in, or
were expected to result in, forgiveness
of the loan. To find more information,
including requirements, of this safe harbor, see Rev. Proc. 2021-20.
The COVID-19 related credit for
qualified sick and family leave wages.
The Families First Coronavirus Response Act (FFCRA) was amended by
recent legislation. The FFCRA requirement that employers provide paid sick
and family leave for reasons related to
COVID-19 (the employer mandate) expired on December 31, 2020; however,
the COVID-related Tax Relief Act of
2020 extends the periods for which employers providing leave that otherwise
meets the requirements of the FFCRA
may continue to claim tax credits for
qualified sick and family leave wages
paid for leave taken before April 1,
2021.
The American Rescue Plan Act of
2021 (the ARP) adds new sections 3131
and 3132 to the Internal Revenue Code
to provide credits for qualified sick and
family leave wages similar to the credits

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 decreased
to 56 cents a mile.
Figuring a shareholder’s stock and
debt basis. See the new Form 7203 and
its separate instructions, which have
been developed to replace the 3-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).
Credits for self-employed persons.
Refundable credits are available to certain self-employed persons impacted by
the coronavirus. See the Instructions for
Form 7202, Credit for Sick Leave and
Family Leave for Certain Self-Employed Individuals, for more information.
Business meal expense. For a limited
time, business meals are 100% deductible under certain conditions. See Line 6,
later, for more information.
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 Sched-

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Sep 28, 2021

Cat. No. 24332T

that were previously enacted under the
FFCRA and amended and extended by
the COVID-related Tax Relief Act of
2020. The credits under sections 3131
and 3132 are available for qualified
leave wages paid for leave taken after
March 31, 2021, and before October 1,
2021.

Reminder
Self-employed tax payments deferred
from 2020. If you elected to defer
self-employed tax payments from 2020,
see How self-employed individuals and
household employers repay deferred
Social Security tax.

General
Instructions
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 are $1,000 or less) to file
and pay these taxes only once a year
instead of every quarter.
• 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 2021, to claim amortization
that began in 2021, 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.
• 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 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 8910 to claim a credit for
placing a new alternative motor vehicle
in service for business use.
• 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 2021
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
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 qualified
joint venture 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
CAUTION co-owners (and not in the name
of a state 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 qualified
joint venture.

!

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 qualified
joint venture. 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 qualified joint
venture, each of you must report your

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interest as separate properties on line 1
of Schedule E. On lines 3 through 22 for
each separate 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 qualified joint venture continue to meet the requirements
to be treated as a qualified joint venture.
If the spouses fail to meet the qualified
joint venture 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 qualified joint venture.
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 qualified joint venture status does not alter
the application of the self-employment
tax or the passive loss limitation rules.
For more information on qualified
joint ventures, 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 confi-

dentiality for which you paid an advisor
a fee of at least $50,000.
• 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 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 8o, 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

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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 real or personal property is a rental activity under the passive
activity loss rules in most cases, but exceptions apply. If your rental of property
is not treated as a rental activity, you
must determine whether it is a trade or
business activity and, if so, whether you
materially participated in the activity for
the tax 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
2021, 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 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 elec-

TIP tion on your timely filed 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,
IRS.gov/irb/
available
at
2011-24_IRB#RP-2011-34.
If you were a real estate professional for
2021, 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.

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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 (defined later) is $100,000 or less
($50,000 or less if married filing separately).
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.
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 than
10% by value of all interests in the activity. If you are a limited partner, you
are also not treated as actively participating in a partnership's rental real estate
activities.
Modified adjusted gross income. This
is your adjusted gross income from
Form 1040, 1040-SR, or Form
1040-NR, line 11, without taking into
account:

•

Any allowable passive activity

loss,

• Rental real estate losses allowed
for real estate professionals (see Activities of real estate professionals, earlier),
• Taxable social security or tier 1
railroad retirement benefits,
• Deductible contributions to a traditional IRA or certain other qualified retirement plans under section 219,
• The student loan interest deduction,
• The deduction for one-half of
self-employment tax,
• The exclusion from income of interest from series EE and I U.S. savings
bonds used to pay higher education expenses,
• Any excluded amounts under an
employer's adoption assistance program,
and
• The deduction allowed for foreign-derived intangible income and
global intangible low-taxed income.
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
CAUTION if you should report your rental
real estate and royalty income on Schedule C or Form 4835, instead of Schedule E.

!

Credits for qualified sick and family
leave wages and credits for employee
retention. If you claimed credits for
qualified sick and family leave wages on
Form 944 or Form(s) 941 for employees
of your rental or royalty activities, report
the nonrefundable and refundable portions of those credits as income on line 3
or line 4, as applicable. If you claimed
the employee retention credit taken on
Form 944 or Form(s) 941 for employees
of your rental or royalty activities, reduce your deduction for wages by the
nonrefundable and refundable portions
of the credit. Do not reduce your deduction for social security and Medicare
taxes on line 16 by either of these credit
amounts.

Line A
If you made any payments in 2021 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; and, you generally
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 2021 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

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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 8k 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 Sched-

TIP ule E may be qualified 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 .
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.
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.

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);
• 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
2021. 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 2021, 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 2021, 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
CAUTION related to days of personal use
do not qualify 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

!

E-6

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.
QJV. Check the box for “QJV” if you
owned the property as a member of a
qualified joint venture reporting income
not subject to self-employment tax. See
Qualified Joint Venture, earlier.

Line 3
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.
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 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; and patents. Use a separate column (A, B, or C)
for each royalty property.
If you received $10 or more in royalties during 2021, the payer should send
you a Form 1099-MISC or similar statement by February 1, 2022, 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.
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 2021 to provide access to
your business for individuals with disabilities. See Form 8826 for details.
You can also elect to deduct up to
$15,000 of qualified costs paid or incurred in 2021 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. However, business meals
are 100% deductible if the meals are
food and beverages provided by a restaurant and paid or incurred after December 31, 2020, and before January 1,
2023. 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 2021 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
56 cents a mile. Include this amount and
your parking fees and tolls on line 6.
You cannot deduct rental or
lease payments, depreciation,
CAUTION 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.

E-7

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.

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. See
Pub. 535 for details.
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 listed 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 2021
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 2021, the recipient
should send you a Form 1098 or similar
statement by February 1, 2022, 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. 535 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.”

Line 14
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.
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 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 you first use
the property 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 2021;
• 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
2021.
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 Pub.
535 for details.
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

E-8

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 may be able to deduct, on
line 19, part or all of the cost of modifying existing commercial buildings to
make them energy efficient. For details,
see section 179D, Notice 2006-52, Notice 2008-40, and Notice 2012-26. You
can find Notice 2006-52 on page 1175
of Internal Revenue Bulletin 2006-26 at
Notice 2006-52. You can find Notice
2008-40 on page 725 of Internal Revenue Bulletin 2008-14 at Notice 2008-40.
You can find Notice 2012-26 on
page 847 of Internal Revenue Bulletin
2012-17 at Notice 2012-26.

Line 21
If you have amounts for which you are
not at risk, use Form 6198 to determine
the amount of your deductible loss. Enter that 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
qualified joint venture instead
CAUTION of a partnership, follow the reporting rules under Qualified Joint Venture, earlier.

!

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 Sched-

ule 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, 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

E-9

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
the 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 II, 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 2020
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 2020.
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 for 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 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

E-10

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.
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.

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 rela-

E-11

ted 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 (Form 1041, Schedule K-1, 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
2021, 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 them 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,
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.

!

CAUTION

Do not include the amount
shown in column (c) in the total
on Schedule E, line 39.

Column (e). Report the total of the
amounts shown on Schedule(s) Q,
line 3b.

Part V Summary
Line 42
Special estimated tax rules may apply if
you have gross farming or fishing in-

E-12

come. You will not be charged a penalty
for underpayment of estimated tax if:
1. Your gross farming or fishing income for 2020 or 2021 is at least
two-thirds of your gross income; and
2. You file your 2021 tax return and
pay the tax due by March 1, 2022.
For details, see chapter 15 of Pub. 225.
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
ensure that you are complying with
these laws and to allow us to figure and
collect the right amount of tax.
You are not required to provide 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 section
6103.
The time needed to complete and file
this form will vary depending on individual circumstances. The estimated
burden for individual taxpayers filing
this form is included in the estimates
shown in the instructions for their individual income tax return. The estimated
burden for all other taxpayers who file
this form is approved under OMB control number 1545-1972 and is shown
next.
Recordkeeping . . . . . . . . .
Learning about the law or the
form . . . . . . . . . . . . . . .
Preparing the form . . . . . .
Copying, assembling, and
sending the form to the IRS .

3 hr., 3 min.
1 hr., 2 min.
1 hr., 34 min.
34 min.

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.