discussion for business deductions for both a Schedule C and Schedule E, adjustments to gross income, and the Passive Loss Limitation Rules.

CHAPTER 6 Individual Des Rental and Royalty Expenses Taxpayers are allowed to deduct their expenses as sociated with generating rental or royalty income for AGI.Like business expenses, rental and royalty expenses do not appear directly on page 1 of Form 1040. Instead, rental and royalty deductions are reported with rental and royalty revenues on Schedule E of Form 1040. Schedule E, presented in Exhibit 6-3, is essentially an income statement for the taxpayer's rental or royalty activities. Taxpayers transfer the net income or loss from EXHIBIT 6-3 Page 1 of Schedule E Rental or Royalty Income SCHEDULE E Supplemental Income and Loss OMB No. 1545-0074 (Form 1040 or 1040-SR (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMIC, etc.) 2019 Department of the Treasury Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Attachment Internal Revenue Service Go to www.irs.gov/Schedule for instructions and the latest information. Sequence No 13 Name shown on retum Your social security number al Part 1 Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use Schedule C (see Instructions). If you are an individual report far rental income or loss from Form 4836 on page 2, line 40 A Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) Yes No B If "Yes," did you or will you file required Forms 1099? Yes No 1a Physical address of each property (street, city, state, ZIP code) B C 1b Type of Property 2 For each rental real estate property listed Fair Rental Personal Use QJV (from list below) above, report the number of fair rental and Days Days personal use days. Check the QJV box only if you meet the requirements to file as B a qualified joint venture. See instructions. B n Type of Property: Single Family Residence 3 Vacation/Short-Term Rental 5 Land 7 Self-Rental 2 Multi-Family Residence 4 Commercial 6 Royalties 8 Other (describe Income: Properties: B 3 Rents received 3 4 Royalties received 4 4 Expenses: 5 Advertising 5 6 Auto and travel (see instructions) 6 7 Cleaning and maintenance 7 8 Commissions..... 8 9 9 Insurance 9 10 Legal and other professional fees 10 11 Management fees 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 13 Other interest. 13 14 Repairs. 14 15 Supplies 15 16 Taxes 16 17 Utilities 17 18 Depreciation expense or depletion 18 19 Other (list) 19 20 Total expenses. Add lines 5 through 19 20 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss). see instructions to find out if you must file Form 6198 ........ 21 22 Deductible rental real estate loss after limitation, if any. on Form 8582 (see instructions) (... 23a Total of all amounts reported on line 3 for all rental properties 23a b Total of all amounts reported on line 4 for all royalty properties 23b Total of all amounts reported on line 12 for all properties .. 23c d Total of all amounts reported on line 18 for all properties 23d e Total of all amounts reported on line 20 for all properties 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here. 25 26 Total rental real estate and royalty income or loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 Form 1040 or 1040-SR), line 5, or Form 1040-NR, line 18. Otherwise, include this amount in the total on line 41 on page 2 26 For Paperwork Reduction Act Notice, see the separate instructions Cat No. 11344L Schedule E (Form 10400 1040-SR) 2019 22 Source: IRS.gov. EXHIBIT 6-2 Parts I and II from Schedule C Profit or Loss from Business OMB No. 1545-0074 SCHEDULEC Profit or Loss From Business (Form 1040 or 1040-SR) (Sole Proprietorship) 2019 Department of the Treasury Go to www.irs.gov/Schedule for instructions and the latest information. Attachment Internal Revenue Service (99 Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships generally must file Form 1065. Sequence No. 09 Name of proprietor Social security number (SSN) B Enter code from instructions A Principal business or profession, including product or service (see instructions) D Employer ID number (EIN) (see instr. Business name. If no separate business name, leave blank. E Business address (including suite or room no.) City, town or post office, state, and ZIP code F Accounting method: (1) Cash (2) Accrual (3) Other (specify) Yes No Did you "materially participate in the operation of this business during 2019? "No," see instructions for limit on losses L H If you started or acquired this business during 2019, check here Yes No 1 Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) Yes No If "Yes, es, did you or will you file required Forms 1099? Part 1 Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the Statutory employee" box on that form was checked 1 2 Returns and allowances 2 3 Subtract line 2 from line 1 3 4 Cost of goods sold (from line 42) 4 5 Gross profit. Subtract line 4 from line 3 5 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) 6 7 Gross income. Add lines 5 and 6 7 7 Part II Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising. . . . . 8 18 Office expense (see instructions) 18 Car and truck expenses (see 19 Pension and profit-sharing plans 19 instructions) 9 20 Rent or lease (see instructions): 10 Commissions and fees 10 a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) 11 b Other business property 20b 12 Depletion .... 12 21 Repairs and maintenance 21 13 Depreciation and section 179 22 Supplies (not included in Part II). expense deduction (not 22 included in Part III) (see 23 Taxes and licenses 23 instructions)..... 13 24 Travel and meals: 14 Employee benefit programs a Travel 24a (other than on line 19). 14 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions): 25 Utilities 25 a Mortgage (paid to banks, etc.) 16a 26 Wages (less employment credits). 26 16b 27a Other expenses (from line 48) . 27a 17 Legal and professional services 17 b Reserved for future use 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a 28 29 Tentative profit or loss). Subtract line 28 from line 7. 29 30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business: Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30. 30 31 Net profit or loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and 31 trusts, enter on Form 1041, line 3. If a loss, you must go to line 32 32 If you have a loss, check the box that describes your investment in this activity (see instructions). If you checked 32a, enter the loss on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see the line 32a All investment is at risk . 31 instructions). Estates and trusts, enter on Form 1041, line 3. 32b Some investment is not If you checked 32b, you must attach Form 6198. Your loss may be limited at risk. For Paperwork Reduction Act Notice, see the separate instructions. Cat No. 11334P Schedule C (Form 1040 or 1040-SR) 2019 b Other.... Source: IRS.gov. CHAPTER 6 Individual Des Rental and Royalty Expenses Taxpayers are allowed to deduct their expenses as sociated with generating rental or royalty income for AGI.Like business expenses, rental and royalty expenses do not appear directly on page 1 of Form 1040. Instead, rental and royalty deductions are reported with rental and royalty revenues on Schedule E of Form 1040. Schedule E, presented in Exhibit 6-3, is essentially an income statement for the taxpayer's rental or royalty activities. Taxpayers transfer the net income or loss from EXHIBIT 6-3 Page 1 of Schedule E Rental or Royalty Income SCHEDULE E Supplemental Income and Loss OMB No. 1545-0074 (Form 1040 or 1040-SR (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMIC, etc.) 2019 Department of the Treasury Attach to Form 1040, 1040-SR, 1040-NR, or 1041. Attachment Internal Revenue Service Go to www.irs.gov/Schedule for instructions and the latest information. Sequence No 13 Name shown on retum Your social security number al Part 1 Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use Schedule C (see Instructions). If you are an individual report far rental income or loss from Form 4836 on page 2, line 40 A Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) Yes No B If "Yes," did you or will you file required Forms 1099? Yes No 1a Physical address of each property (street, city, state, ZIP code) B C 1b Type of Property 2 For each rental real estate property listed Fair Rental Personal Use QJV (from list below) above, report the number of fair rental and Days Days personal use days. Check the QJV box only if you meet the requirements to file as B a qualified joint venture. See instructions. B n Type of Property: Single Family Residence 3 Vacation/Short-Term Rental 5 Land 7 Self-Rental 2 Multi-Family Residence 4 Commercial 6 Royalties 8 Other (describe Income: Properties: B 3 Rents received 3 4 Royalties received 4 4 Expenses: 5 Advertising 5 6 Auto and travel (see instructions) 6 7 Cleaning and maintenance 7 8 Commissions..... 8 9 9 Insurance 9 10 Legal and other professional fees 10 11 Management fees 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 13 Other interest. 13 14 Repairs. 14 15 Supplies 15 16 Taxes 16 17 Utilities 17 18 Depreciation expense or depletion 18 19 Other (list) 19 20 Total expenses. Add lines 5 through 19 20 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss). see instructions to find out if you must file Form 6198 ........ 21 22 Deductible rental real estate loss after limitation, if any. on Form 8582 (see instructions) (... 23a Total of all amounts reported on line 3 for all rental properties 23a b Total of all amounts reported on line 4 for all royalty properties 23b Total of all amounts reported on line 12 for all properties .. 23c d Total of all amounts reported on line 18 for all properties 23d e Total of all amounts reported on line 20 for all properties 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here. 25 26 Total rental real estate and royalty income or loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 Form 1040 or 1040-SR), line 5, or Form 1040-NR, line 18. Otherwise, include this amount in the total on line 41 on page 2 26 For Paperwork Reduction Act Notice, see the separate instructions Cat No. 11344L Schedule E (Form 10400 1040-SR) 2019 22 Source: IRS.gov. EXHIBIT 6-2 Parts I and II from Schedule C Profit or Loss from Business OMB No. 1545-0074 SCHEDULEC Profit or Loss From Business (Form 1040 or 1040-SR) (Sole Proprietorship) 2019 Department of the Treasury Go to www.irs.gov/Schedule for instructions and the latest information. Attachment Internal Revenue Service (99 Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships generally must file Form 1065. Sequence No. 09 Name of proprietor Social security number (SSN) B Enter code from instructions A Principal business or profession, including product or service (see instructions) D Employer ID number (EIN) (see instr. Business name. If no separate business name, leave blank. E Business address (including suite or room no.) City, town or post office, state, and ZIP code F Accounting method: (1) Cash (2) Accrual (3) Other (specify) Yes No Did you "materially participate in the operation of this business during 2019? "No," see instructions for limit on losses L H If you started or acquired this business during 2019, check here Yes No 1 Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) Yes No If "Yes, es, did you or will you file required Forms 1099? Part 1 Income 1 Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the Statutory employee" box on that form was checked 1 2 Returns and allowances 2 3 Subtract line 2 from line 1 3 4 Cost of goods sold (from line 42) 4 5 Gross profit. Subtract line 4 from line 3 5 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) 6 7 Gross income. Add lines 5 and 6 7 7 Part II Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising. . . . . 8 18 Office expense (see instructions) 18 Car and truck expenses (see 19 Pension and profit-sharing plans 19 instructions) 9 20 Rent or lease (see instructions): 10 Commissions and fees 10 a Vehicles, machinery, and equipment 20a 11 Contract labor (see instructions) 11 b Other business property 20b 12 Depletion .... 12 21 Repairs and maintenance 21 13 Depreciation and section 179 22 Supplies (not included in Part II). expense deduction (not 22 included in Part III) (see 23 Taxes and licenses 23 instructions)..... 13 24 Travel and meals: 14 Employee benefit programs a Travel 24a (other than on line 19). 14 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions): 25 Utilities 25 a Mortgage (paid to banks, etc.) 16a 26 Wages (less employment credits). 26 16b 27a Other expenses (from line 48) . 27a 17 Legal and professional services 17 b Reserved for future use 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a 28 29 Tentative profit or loss). Subtract line 28 from line 7. 29 30 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business: Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30. 30 31 Net profit or loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and 31 trusts, enter on Form 1041, line 3. If a loss, you must go to line 32 32 If you have a loss, check the box that describes your investment in this activity (see instructions). If you checked 32a, enter the loss on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see the line 32a All investment is at risk . 31 instructions). Estates and trusts, enter on Form 1041, line 3. 32b Some investment is not If you checked 32b, you must attach Form 6198. Your loss may be limited at risk. For Paperwork Reduction Act Notice, see the separate instructions. Cat No. 11334P Schedule C (Form 1040 or 1040-SR) 2019 b Other.... Source: IRS.gov