What type of income does Schedule E cover?

Schedule E of the IRS Form 1040 is specifically used for reporting supplemental income and loss. This category includes various sources of income such as rental income, royalties, partnerships, S corporations, estates, trusts, and more.

The term "supplemental" indicates that this type of income is not derived from traditional employment but rather from different channels that can vary in nature. For instance, individuals who own rental properties would report the income and associated expenses related to those properties on Schedule E, allowing them to calculate their net rental income or loss. Additionally, those involved in partnerships or receiving income from S corporations would also document their share of profits or losses in this part of the tax return.

The classification of income under Schedule E is crucial for tax purposes since it determines how it's taxed and how losses can offset other types of income, potentially providing tax benefits to the taxpayer.