How to Claim Rental Losses on U.S. Tax Forms

When your home rental activities end up costing you more than it was worth, you may be able to deduct your losses on your taxes that next year by filling out Schedule E "Supplemental Income and Loss" (this is an attachment to Form 1040). Schedule E is usually used by people who rent rooms out in their personal homes. It accounts for the rents you took in and the expenses that you had to pay in regards to the rental. You cannot deduct real estate losses on Schedule E if you were holding the property for sale to customers as a real estate business.

Difficulty: Moderate

Instructions

Things You'll Need:

• Schedule E

1. Enter the total amount of your rents received for the prior year on line 3 of Schedule E.

2. Itemize all of your expenses paid on the property in lines 5 through 20. This includes the money you spent on making repairs to the property, advertising costs, utilities for your tenant, supplies and cleaning fees. If you had to travel as a direct result of something that occurred with your rental property, you may be able to deduct your mileage cost. If expensive items in the rental property depreciated in value you can deduct that cost on line 20. The Schedule E form allows you to deduct expenses for up to three units (columns A, B and C).

3. Add up all of your expenses for each column (A through C)and then subtract them from your rental income amounts (line three, columns A through C again) to get your total loss from each of your real estate rental activities.

4. Determine if your rental losses are limited. If your rental loss was due to a "passive activity," which means that you did not materially participate in the rental activities, then your loss will be limited. Fill out Form 8582 to determine what your allowable loss will be.

5. Enter in your total deductible losses on line 23 (columns A through C). Total up columns A, B and C on line 23 to get your total losses from all properties, which should be written in on line 25. If you had a profit from one or more of your units, enter that on line 22 and bring it down to line 24. Add lines 24 and 25 to get the net total loss.

6. Transfer the figure from line 26 into your Form 1040 line 17. It will be deducted from your other income sources to get your adjusted gross income, which is the amount that you will be taxed on after exemptions, special deductions, and standard or itemized deductions are taken.

Tips & Warnings

• Form 1040 Schedule E is only for people who rent their homes out as supplemental income. If you are doing real estate investment as a business, you will need to record your rental gains and losses on Schedule C, which is for "Profits and Losses from Business." The Form line numbers sometimes change in future tax years, so double check that you are placing your rental loss amounts in the correct spaces.

Resources

• Schedule E
• More Detailed Instructions for Schedule E
• Form 8582