Report rental income on Schedule E (Form 1040) if you own residential or commercial property

The IRS requires you to report all rental income on your federal tax return, even if you did not receive a 1099 form from your tenant or property manager. You report this income on Schedule E (Supplemental Income and Loss), which attaches to your Form 1040. The income goes on line 3 of Schedule E, and you also report your rental expenses there so the IRS can see your net profit or loss.

You must file Schedule E for each property you own, or if you own multiple properties, you can list them all on one form. The deadline to file is the same as your regular tax return — April 15 of the following year, or October 15 if you file an extension.

Rental income includes not only monthly rent but also security deposits you keep (for damage beyond normal wear), late fees, pet fees, parking fees, and any other money a tenant pays you for use of the property. If a tenant pays you in cash, you still report it. If a tenant pays you in cryptocurrency or any other form of value, you still report it at its fair market value on the day you received it.

Key Takeaways

  • Report all rental income on Schedule E, whether you received a 1099 form or not, and whether you were paid in cash, check, or any other method.
  • Rental income includes rent, security deposits you keep, late fees, pet fees, and any other payments from tenants for use of the property.
  • You report expenses (mortgage interest, property tax, repairs, utilities, insurance, and depreciation) on the same Schedule E to show your net rental profit or loss.
  • If you own multiple properties, you can list them all on one Schedule E or file separate forms — either way, the IRS sees the combined total.
  • Failure to report rental income can result in penalties, interest, and an IRS audit, even if the amount is small or you were paid in cash.

What counts as rental income you must report

Rental income is broader than just the monthly rent check. Any money a tenant gives you in exchange for use of the property counts. This includes advance rent (rent paid before the month it covers), security deposits you do not return because of damage, cleaning fees, pet deposits you keep, parking fees, storage fees, and late payment penalties.

If you provide services as part of the rental — for example, you include utilities, internet, or parking in the rent — the full amount is still rental income. You cannot exclude the utility portion just because you pay the bill yourself. If a tenant pays you to break a lease early, that payment is also rental income.

If you exchange the use of your property for something other than money — for example, a tenant paints your house in exchange for a month's rent reduction — you must report the fair market value of that service as rental income. The same rule applies if you forgive rent in exchange for repairs or other work.

How to complete Schedule E with your income and expenses

Schedule E has two main sections: one for your property information and rental income, and one for your expenses. On the income side, you enter the address of the property, the number of days it was rented during the year, and your total rental income for the year. If the property was vacant for part of the year, you still report the days it was available for rent.

On the expense side, you list deductible costs: mortgage interest (not principal), property taxes, utilities, insurance, repairs, maintenance, property management fees, advertising for tenants, legal and accounting fees, depreciation, and any other ordinary business expense. You do not deduct the principal portion of your mortgage payment, but you do deduct the interest. You do not deduct capital improvements (like a new roof or kitchen remodel), but you can depreciate them over time.

At the bottom of Schedule E, you calculate your net rental income or loss by subtracting total expenses from total income. If you have a loss, you may be able to deduct it against other income, though passive loss rules limit this for higher-income taxpayers. If you have a profit, that amount is taxable income.

Reporting rental income from multiple properties

If you own two or more rental properties, you have the option to list them all on one Schedule E or file separate Schedule E forms for each property. Most taxpayers list all properties on one form for simplicity. The IRS will see the combined total of all your rental income and expenses either way.

If you own many properties or have complex expenses, some accountants recommend filing separate Schedule E forms for each property so the records are easier to audit if the IRS asks questions. This is a matter of preference and organization, not a legal requirement.

If you own a property with a co-owner (a spouse, family member, or business partner), you and the co-owner each report your share of the income and expenses on your own Schedule E. If you own the property as tenants in common, each owner reports their percentage. If you own it as a partnership or LLC, the entity files its own return and you report your share on Schedule E.

When you receive a 1099-NII or 1099-MISC for rental income

If you hire a property manager or use a rental platform like Airbnb or Vrbo, you may receive a 1099-NII (for rental real estate income) or 1099-MISC (for miscellaneous income) showing the rental income the platform or manager reported to the IRS. You must report this income on Schedule E whether or not you receive the form. If you receive a 1099 form, the amount on it should match what you report on Schedule E.

If you receive a 1099 form but the amount is wrong — for example, the platform reported income you did not actually receive, or failed to report some income — you should still report the correct amount on your tax return. Keep your own records (bank statements, lease agreements, payment records) to support the number you report. If the 1099 amount and your reported amount differ significantly, attach a note to your return explaining the discrepancy.

If you do not receive a 1099 form but you should have (for example, a tenant paid you cash and the platform did not issue a form), you still report the income. The IRS does not need a 1099 to require you to report income — the 1099 is just a record-keeping tool.

Keeping records to support your rental income and expenses

The IRS does not require you to attach receipts or records to your tax return, but you must keep them for at least three years in case you are audited. For rental property, keep bank statements showing deposits from tenants, lease agreements, records of any payments you forgave or exchanges you made, and documentation of all expenses you deduct.

For expenses, keep receipts, invoices, credit card statements, and cancelled checks. If you claim depreciation on the building or improvements, keep the original purchase documents and records of any capital improvements you made. If you use a spreadsheet or accounting software to track income and expenses, print or save a copy of your records.

If you are audited, the IRS will ask to see these records to verify that the income and expenses you reported are accurate. Having organized records makes the audit process faster and protects you if there are questions about what you deducted.

State and local tax reporting for rental income

In addition to federal taxes, you must report rental income on your state income tax return if your state has an income tax. Most states require you to file a form similar to Schedule E, and some states have their own depreciation rules that differ from federal rules. A few states also require you to file a separate form if you own rental property in that state.

Some cities and counties impose a rental tax or occupancy tax on short-term rentals (Airbnb, Vrbo, vacation rentals). If you rent your property short-term, check your local government's website to see whether you owe this tax in addition to income tax. These taxes are separate from federal and state income tax and are usually paid monthly or quarterly.

If you own rental property in more than one state, you may owe income tax to multiple states. Some states offer credits to avoid double taxation, but you need to file in each state where you own property. An accountant familiar with multi-state rental income can help you understand your obligations.

Frequently Asked Questions

Do I have to report rental income if I only rented my property for part of the year?

Yes. Report all rental income you received during the year, even if you only rented the property for a few months. On Schedule E, you report the number of days the property was available for rent and the total income you received during that time.

What if I received cash rent and no one knows about it?

You still must report it. The IRS requires you to report all income regardless of how you were paid. Failure to report cash income can result in penalties and interest if discovered during an audit, and the IRS has tools to detect unreported income through bank deposits and lifestyle changes.

Can I deduct my mortgage payment as a rental expense?

You can deduct the interest portion of your mortgage payment, but not the principal. You also cannot deduct the principal, but you can claim depreciation on the building itself over 27.5 years. Ask your lender or accountant to break down how much of each payment goes to interest versus principal.

Do I report rental income if I own the property with my spouse?

If you file taxes jointly with your spouse and you own the property together, you report the combined rental income on one Schedule E on your joint return. If you file separately, each spouse reports their share. If you own the property as a partnership or LLC, the entity files its own return and you report your share on Schedule E.

What happens if I do not report rental income?

The IRS can assess penalties (typically 20 percent of the unpaid tax), interest on the unpaid amount, and may audit your return. If the IRS discovers unreported income years later, you can be liable for back taxes plus interest going back several years. Reporting the income when you file is simpler and cheaper than dealing with an audit.