Quick answer: Schedule E is the part of your federal Form 1040 where you report rental income and expenses for each property. You deduct costs such as mortgage interest, property tax, repairs and depreciation, and the net profit or loss flows to your personal return, subject to the passive loss rules.
If you own a rental home, condo or townhouse, your rental income and expenses go on Schedule E of your federal return. Getting it right can save you real money, especially in a high value market like Loudoun County. Here is how it works.
What Schedule E is
Schedule E (Form 1040) reports supplemental income. For most landlords, that means rental real estate. You list each property, its rent and its expenses, and the net profit or loss flows to your personal return.
Schedule E is also where you report income from partnerships and S corporations shown on a K-1, as well as royalties.
What counts as rental income
- Monthly rent you receive
- Advance rent, even if it covers a future year
- Fees a tenant pays you, such as late fees or pet fees
- Expenses a tenant pays on your behalf
- A security deposit you keep, for example to cover damage
A security deposit you plan to return is not income while you hold it.
Deductible rental expenses
- Mortgage interest on the rental
- Real estate taxes. In Loudoun County, this is often one of your largest deductions
- Insurance and HOA dues
- Repairs and maintenance
- Property management fees
- Utilities you pay
- Advertising, legal and accounting fees
- Travel to and from the property for rental business
- Depreciation (see below)
Good to know: Real estate tax on a rental property is a rental expense on Schedule E. It is not limited by the SALT cap that applies to the taxes on your own home.
Depreciation: the deduction owners miss
You can deduct the cost of a residential rental building over 27.5 years, even though you do not write a check for it each year. Land cannot be depreciated, so you split the purchase price between land and building.
Your Loudoun County assessment shows separate values for land and improvements. That split is a reasonable starting point for the allocation.
When you sell, depreciation you claimed (or could have claimed) is generally taxed back at up to 25%, so it pays to track it accurately from day one.
Repairs vs improvements
A repair keeps the property in working order and is deducted right away. An improvement makes the property better, restores it or adapts it to a new use, and is depreciated over time.
| Usually a repair | Usually an improvement |
|---|---|
| Fixing a leaky faucet | Remodeling a kitchen |
| Patching drywall | Replacing the roof |
| Repainting between tenants | Adding a deck or bedroom |
IRS safe harbors, such as the de minimis rule for items costing $2,500 or less per invoice, can let you deduct some smaller purchases right away.
Passive loss limits
Rental losses are usually passive, which means they can only offset passive income. There is an important exception:
- If you actively participate, for example by approving tenants and setting rent, you may deduct up to $25,000 of rental losses against other income
- That allowance phases out as modified adjusted gross income rises from $100,000 to $150,000
- Losses you cannot use carry forward to future years and are released when you sell
Many Northern Virginia households earn above $150,000, so their rental losses carry forward instead. Real estate professionals who meet strict hour tests are treated differently.
Short term rentals and personal use
- If the average guest stays 7 days or less, the rental is generally not treated as a rental activity under the passive rules
- If you provide hotel style services, income may belong on Schedule C instead of Schedule E
- If you rent a home for 14 days or less in a year, that rent is generally not taxable
- If you use the property personally for more than 14 days, or more than 10% of the days it is rented, special vacation home rules limit your deductions
Keep clean records by property
The simplest way to get Schedule E right is to keep separate books for each property, with income and expenses recorded every month. Our real estate accounting service does exactly that for landlords and property managers.
→Related guideThe 2025 and 2026 SALT Cap: What It Means for Loudoun County HomeownersIt explains why taxes on your own home are capped while taxes on a rental property are not.Schedule E rental property FAQs
Do I have to file Schedule E if my rental lost money?
Yes. You report every rental property each year, even with a loss. Recording the loss now matters because losses you cannot use yet carry forward to future years.
Do I pay self employment tax on rental income?
Generally no. Rental income reported on Schedule E is not subject to self employment tax. That can change if you provide substantial services to guests, which may move the income to Schedule C.
When can I start depreciating a rental property?
Depreciation starts when the property is placed in service, meaning it is ready and available to rent, not when the first tenant moves in. Residential buildings use a mid month convention in the first year.
What if I rent my property to a family member?
If a relative pays less than fair market rent, those days count as personal use. That can trigger the vacation home rules and limit your deductions.
Does Virginia have its own form for rental income?
No separate Virginia rental form is needed. Virginia starts with your federal adjusted gross income, so your Schedule E profit or loss flows into your Form 760.
Get help from a local team
We prepare Schedule E as part of our individual tax preparation for rental owners in Ashburn and across Loudoun County, and our tax planning helps you plan purchases and depreciation before year end.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
