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Rent and Royalty Income

Pub 4012 – Tab D�Pub 4491 – Lesson 12

Video: Schedule E

TY 2024

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Rent and Royalty Scope

  • Rent and royalty in scope for
    • Unimproved land rent
    • Royalty
    • Form 1099-Misc or taxpayer-stated
  • Schedule K-1 in scope for
    • Royalty
    • Not Rent

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Rental Income

  • Rent
    • Periodic payment by tenant to landlord in return for use of land, building, apartment, office, or other property
  • Does not include a cost-sharing arrangement
    • roommate or household member contributing monetarily
    • should not exceed the allocable actual costs

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Pub 527

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Rental Income

  • Rental income in-scope if
    • Land or gas/oil lease
    • Reported on a Form 1099-MISC or
    • Taxpayer states received from individual and no Form 1099-MISC
  • No Expenses except property tax
    • Report on Schedule A
  • Rent reported on a Schedule K-1 – Out of scope

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Example 1099-MISC

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Rental Income in TaxSlayer

  • After entering Form 1099-MISC with box 1 rental income TaxSlayer prompts to create a new Schedule E
    • Do NOT click CONTINUE – Schedule E will not be created
    • The only Schedule E Type that is in scope is Land
  • If more than one 1099-MISC for the same property:
    • Click the pencil icon to add to Schedule E for that property
  • Create new Schedule E if 1099-MISC for different property
  • No Form 1099-MISC received – open Schedule E directly

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Rental Expenses

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No Expenses Allowed on Schedule E

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Rent of Personal Residence for fewer than 15 Days

  • Property used as personal residence and rented fewer than 15 days during tax year
    • Rent not reported on tax return
      • Exception: Form 1099-MISC received
    • Do not deduct rental expenses
      • can deduct mortgage interest and property taxes per normal rules on Schedule A

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Rent of Personal Residence for fewer than 15 Days

  • If Form 1099-MISC received for fewer than 15 days rent
    • Enter the Form 1099-MISC rent income and
    • Deduct same amount as “other expense” on Schedule E and describe as “fewer than 15 day exclusion”
  • Note: taxpayer must have used property as personal residence for 15 days or more during the year

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Royalty Income

  • Royalties from gas/oil lease in-scope if reported on Schedule K-1 or Form 1099-MISC
    • Reported on Schedule E
    • No deductions allowed – including depletion – refer to professional preparer
  • Royalties from self-employment (such as an author, inventor, artist, etc.) is business income reported on income on Schedule C
    • Taxpayer may be eligible for the Self-employed Health Insurance adjustment and Qualified Business Income (QBI) Deduction

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Royalty Income in TaxSlayer

  • TaxSlayer prompts to create a new Schedule E when Form 1099-MISC box 2 entry is made
    • Royalties automatically selected
  • Box 2 royalties from self-employment should be entered by creating a 1099-NEC with same payee information and entry in box 1 – prompts to create Schedule C
  • No Form 1099-MISC received – open Schedule E or C as appropriate

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Royalty Income on Schedule K-1

  • Enter data from Schedule K-1 in TaxSlayer
  • Income carries to Schedule E and then to Form 1040
  • See separate Income – Schedule K-1 lesson

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Rent and Royalty Income

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NTTC Training – TY2021

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