What is a Schedule E?
A Schedule E form is used to report any income or loss that you have incurred from rental real estate, partnerships, S corporations, royalties or trusts to the IRS.
How do I generate a Schedule E in Azibo?
Azibo enables rental property owners to automatically generate a complete, up-to-date Schedule E form for all your properties in the selected calendar year. Simply follow these steps:
- Import all rental business transactions
- Assign each transaction to a unit, property, and/or portfolio.
- Use our bulk editor, transaction splitting, and other helpful tools to tag each transaction as a specific income or expense category.
- Work with your CPA to calculate the values for depreciation of capitalized costs and amortization of loan costs for each property, then add them to Azibo by creating transactions and tagging them as “Depreciation” and “Amortization.”
- Go to Reports and click Schedule E. Select the properties and the time period for the report to see the live results.
What are the common mistakes landlords make in preparing Schedule E
- Missing rental income and expenses. Don’t forget to add expenses that were made on credit cards or bank accounts that are not linked to Azibo.
- Incorrect accounting for mortgage payments. Be sure to split and tag your mortgage payment into principal, interest, and escrow to ensure compliant and accurate reports and taxes. Learn more about Accounting for Mortgage Payments in Azibo
- Improperly categorizing repairs and CapEx. Follow the IRS guidelines on what counts as repairs/maintenance vs. capital expenditures. Learn more in our guide Property Improvements and Repairs: Expense or CapEx?
- Booking security deposits as income. Since security deposits do not count as rental income, they should not be listed on the P&L. Similarly, a returned security deposit is not an expense.
- Reporting expenses before a unit is in service. Costs incurred before your rental business is up and running do not count as operating expenses and should not be included in the Schedule E. Instead, they are startup expenses, which have different tax implications.
- Misreporting pre-paid rent. In cash-basis accounting, prepaid rent should always be recognized as income on the date that it’s received, not when it’s due. Learn more about Accounting for Prepaid Rent.
- Not reporting escrow insurance and property tax payments.
- Expense the insurance when it’s contributed to the escrow account
- Including owner distributions or contributions. While you might be tempted to list owner distributions (withdrawals from your rental business profits) as expenses, and owner contributions (money taken out of your own pocket to fund your rental business) as income, neither should be listed in the Schedule E.
- Fail to include or calculate the correct depreciation and amortization values
- Fail to follow passive activity loss rules
I just purchased or sold a property. What do I need to report on Schedule E?
If you just purchased a property, the first step is to confirm the land and building values, and capture all the loan costs and closing costs. Calculate depreciation and amortization based on those values, and add them to your Schedule E.
Note that proceeds and costs of selling a property do not need to be reported in Schedule E. Instead, report them in Form 4797.
Consult with your CPA if you have further questions.
Azibo Accounting is designed to help you avoid all above mistakes and human errors in rental accounting. Try it for free today!
Disclaimer: This content has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting or tax advice.