Part I

• Income or loss from rental real estate and royalties is reported on Part I of Schedule E. Expenses and operating costs are deducted from the rental receipts and other income to determine net gain or loss. This amount is carried forward to the taxpayer's 1040 tax return.
  
  

Part II

• Part II of Schedule E is for reporting income and losses from partnerships and S Corporations. After deducting expenses from income, the company's net earnings pass through to its shareholders or partners. The profit or loss is reported by the company on Schedule K-1, which is mailed annually to each partner or shareholder.
  
  

Part III

• Income and losses from estates and trusts are reported on Form 1041 and the taxpayer receiving this form carries the amounts forward to Part III of Schedule E. As with Part II, passive income is separated from non-passive income. Passive income is income generated without the taxpayer's active or material participation in the activity producing the income.
  
  

Part IV

• Income and losses from Real Estate Mortgage Investment Conduits or REMICs are reported on Part IV of Schedule E. Individual taxpayers who have invested in "bundles" of mortgages report their income here.
  
  

Part V

• The final section of Schedule E is a summary of earnings and losses reported on this form. This section includes calculating farm income and allows real estate professionals to determine the amount that will "pass through" to the taxpayer's 1040 tax return.