Pennsylvania PA Schedule E - Rents and Royalty Income (Loss)

PA Schedule E - Rents and Royalty Income (Loss)
2023 PA Schedule E - Rents and Royalty Income (Loss) (Form and Instructions) (PA-40 E)
IMPORTANT: FILL IN FORM MUST BE DOWNLOADED ONTO YOUR COMPUTER PRIOR TO COMPLETING
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PA SCHEDULE E

Rents and Royalty Income (Loss)
PA-40 E (EX) 03-23 (FI)
PA Department of Revenue

START

2023

OFFICIAL USE ONLY

Name of the taxpayer filing this schedule

Social Security Number (shown first) or EIN

➜
Sales Tax License Number (if applicable). See the instructions.

Are rental payments made by lessees through a third party broker?

Yes

No

See the instructions. Report the income and expenses for the use of your personal property by others. Also, report the income you received for the extraction
of oil, gas and other minerals from your property, and the use of your patents and copyrights. Note: If you are in the business of renting your property,
extracting minerals from your property or producing products from your patents and copyrights – use PA Schedule C.

SECTION I

PROPERTY DESCRIPTION

Enter the type and complete address of each rental real estate property, and/or each source of royalty income. If more than three properties, submit additional schedules as needed.
Type

Description of Property

For Profit Property

A

YES
NO

B

YES
NO

C

YES
NO

Complete Address (street, city, state and ZIP code)

Property type: 1. Single family residence 3. Vacation/short-term rental 5. Land
2. Multi-family residence
4. Commercial
6. Royalties

SECTION II

7. Self-rental
8. Other, describe:

INCOME & EXPENSES
Property A

Line a: Identify the property from Section I and indicate ownership (T/S/J)

T

S

Property B
J

T

S

Property C
J

T

S

J

Line b: Is the property rental location in PA?

YES

NO

YES

NO

YES

NO

Line c: Is the property rented for any period less than 30 days?

YES

NO

YES

NO

YES

NO

Income:

1. Rent received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Royalties received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

Expenses: 3. Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Automobile and travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Cleaning and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Legal and professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Mortgage interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. Taxes - not based on net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Depreciation expense - See the instructions . . . . . . . . . . . . . . . . . . . . . . . . 16.
17. Other expenses (itemize): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
............................................................
18. Total Expenses - Add Lines 3 through 17 . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
Income 19. Income – Subtract Line 18 from Line 1 or 2. . . . . . . . . . . . . . . . . . . . . . . . . 19.
or Loss: 20. Loss – Subtract Line 1 or 2 from Line 18. (fill in the oval, if a net loss) . . 20.
21. Net Income or Loss - Total Lines 19 and 20 for short-term rentals. See the instructions. . . . . . . . . .(fill in the oval, if a net loss)

21.

22. Net Income or Loss - Total Lines 19 and 20 for non short-term rentals. See the instructions. . . . . . .(fill in the oval, if a net loss)
23. Rent or royalty income (loss) from PA S corporation(s) and partnerships from your
PA Schedule(s) RK-1 or NRK-1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(fill in the oval, if a net loss)
24. Net Rent and Royalty Income (Loss). Add Lines 22 and 23. If submitting more than one schedule,
total all Line 22 and 23 amounts and include on Line 6 of your PA-40. . . . . . . . . . . . . . . . . . . . . . . . . . .(fill in the oval, if a net loss)

22.

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2023
Instructions for PA-40 Schedule E

Rents and Royalty Income (Loss)

PA-40 E IN 03-23

GENERAL INFORMATION
PURPOSE OF SCHEDULE
Use PA-40 Schedule E to report the amount of net income
(loss) from rents royalties, patents and copyrights for individual or fiduciary (estate or trust) taxpayers.
Refer to the PA Personal Income Tax Guide – Net Income
(Loss) from Rents, Royalties, Copyrights and Patents section for additional information.

RECORDING DOLLAR AMOUNTS
Show money amounts in whole-dollars only. Eliminate any
amount less than $0.50 and increase any amount that is
$0.50 or more to the next highest dollar.

WHO MUST COMPLETE
PA-40 Schedule E must be completed and included with an
originally filed PA-40, Personal Income Tax Return, or PA41, Fiduciary Income Tax Return, if a taxpayer, spouse or fiduciary (estate or trust) has net income (loss) from:
● Rental property;
● Royalties from oil and gas wells, book sales and/or other
sources;
● Patents; and/or
● Copyrights.
PA-40 Schedule E must be completed even if the only transaction is to report a loss.
CAUTION: Do not use federal Schedule E to report net
income (loss) from rents, royalties, patents and copyrights. Unless otherwise noted, Pennsylvania rules generally
do not follow the federal rules for determining the net income
(loss) realized from rents, royalties, patents and copyrights.
An amended PA Schedule E must be included with Schedule
PA-40 X or Schedule PA-41 X if increases or decreases in
income or expense amounts on PA Schedule E are discovered after an original or other amended return is filed with
the department. Section III on Page 2 of Schedule PA-40 X
or Schedule PA-41 X must be completed to explain any increase or decrease to the amount of net income (loss) from
rents, royalties, patents and copyrights reported on an
amended PA-40, Personal Income Tax Return, or amended
PA-41, Fiduciary Income Tax Return.
IMPORTANT: For taxpayers in the real estate sales
business, do not use PA Schedule E. Report any net
income (loss) from rentals of real estate held for sale to customers in the ordinary course of real estate sales, and/or
from the business of renting other personal property on PA
Schedule C.
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FORM INSTRUCTIONS
IDENTIFICATION INFORMATION
NAME
Enter the name of the taxpayer. If a jointly filed return, enter
the name of the primary taxpayer (name shown first on the
PA-40, Personal Income Tax Return). Enter the primary taxpayer’s name even if reporting the income for the spouse.
Enter the name of the estate or trust if including with a PA41, Fiduciary Income Tax Return.
SOCIAL SECURITY NUMBER or EIN
Enter the Social Security number (SSN) of the taxpayer.
Enter the primary taxpayer’s SSN also when reporting net
income (loss) from rents, royalties patents and copyrights
for the spouse. Enter the federal employer identification
number (EIN) when reporting net income (loss) from rents,
royalties, patents and copyrights for an estate or trust.
SALES TAX LICENSE NUMBER
Property owners who rent their property for rental periods of
less than 30 days are required to obtain a sales tax license
number in order to collect and remit the hotel occupancy tax.
If the taxpayer collects and remits hotel occupancy tax on
short-term rentals of less than 30 days, enter the Pennsylvania Sales Tax License Number used to collect and remit
the tax. If a home-sharing website or third party broker, such
as a local real estate management company, collects and
remits the hotel occupancy tax, complete the “Yes” oval as
the answer to the Third Party Broker question and include
the third party broker’s sales tax license number.
THIRD PARTY BROKERS
If payment of the rent or lease payment is not made directly
to the owner of a property but is made by the lessee to a
home sharing website or third party broker, such as a local
real estate management company, complete the “Yes” oval.

GENERAL INSTRUCTIONS
When entering rental and royalty expenses, a deduction
may be taken for all ordinary and necessary expenses for
each property. Do not deduct amounts paid for capital investments or capital improvements other than through depreciation and do not deduct the value of personal labor.
IMPORTANT: If renting part of a personal residence
or other property, deduct only those expenses (or percentages of expenses) that apply to the rented part.
OIL AND GAS ROYALTY INCOME AND EXPENSES
Royalty income is derived from subsurface mineral or oil and
gas rights. As a result, the expenses that relate to surface
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rights, such as real estate taxes and insurance are not allowable against royalty income. Mortgage interest is only
allowable if the interest relates directly to the financing of
the separately enumerated mineral or oil and gas rights. Expenses that relate directly to the production of royalty income, such as production costs payments and costs
related to the negotiation or verification of the lease, are allowable. Direct reductions to payments from the lessor,
such as production costs, transmission costs or gathering
fees, are allowable and should be itemized under Line 17,
Other Expenses.
Expenses incurred by a landowner to restore a property
damaged by staging areas, rights of way or structures
are allowable expenses. However, expenses incurred by
a landowner to improve the property or increase its value
are not allowable.
CAUTION: Depletion, specifically percentage depletion, is not an allowable expense for PA personal income tax purposes. Although cost depletion may be
allowable, it requires that the landowner has clearly identifiable costs incurred with the acquisition of the mineral or oil
and gas rights. These specific costs are not included within
the general acquisition costs of the surface and must be
separately enumerated in a purchase agreement in order to
clearly identify the depletable amount of oil and gas rights
from the property.
Report the amount of royalty income from oil and gas leases
separately from any rental income for the same property.
When reporting royalty income, use the gross amount reported on federal Form 1099-MISC. If expenses were deducted by the lessee prior to making payments, the
expenses may be recorded and deducted on PA-40 Schedule E. No real estate taxes may be deducted against the income from an oil or gas lease and other allowable expenses
are very limited. Please search for answer ID “2853” in the
Find Answers section of the Online Customer Service Center at revenue.pa.gov.

LINE INSTRUCTIONS
SECTION I
PROPERTY DESCRIPTION
Enter the property type code from the list of codes provided
on Schedule E. Enter one code only. Additional information
regarding the codes for each type of property is as follows:
● Code 1, single-family residence. Enter when the rental
period on a single-family residence is 30 days or more.
● Code 2, multi-family residence. Enter when the rental
period on a property containing multiple living units is
30 days or more.
● Code 3, vacation/short-term rental. Enter when the
rental period on a single or multi-family residence or
commercial property is less than 30 days. If the property
is located in Pennsylvania, you must also collect and
remit hotel occupancy tax on the fair market value of the
rental. See Line c instructions for additional information.
● Code 4, commercial. Enter when the rental period on
real estate rented to businesses or organizations is for
30 days or more.
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● Code 5, land. Enter when the property being rented is land.
● Code 6, royalties. Enter when reporting income resulting from royalty payments, bonus payments, and damage rents from oil and gas and other mineral
extractions or from other royalty payments received
from other types of property.
● Code 7, self-rental. Enter when renting property other
than real estate rented to a trade or business in which
there is material participation by the owner.
● Code 8, other. Enter when the property is not one of the
other types listed above. Enter a brief description of the
property in the space provided on the form or include
a statement with the return describing the property.
Enter a brief description that provides additional detail to the
type of property rented. Include the property or building name,
property or building number or any other description that distinguishes the property from similar property. Enter the complete address of the property for each property rented.
For rental real estate, the street address, city or town,
state and ZIP code are required to be entered. For oil and
gas royalties, enter the name of the oil and gas producer
paying the royalties separately for each 1099-MISC received. For all other patent, copyright, or similar property or
any other tangible personal rental property, enter the type
of source of the income. If you have more than three properties, submit additional schedules as needed.
Indicate whether the property is for-profit property or not. PA
law generally follows the IRC Section 280A for rental or
leased property, such as a vacation home, and there is no
intent to realize a profit. In such case, rental expenses may
only be deducted up to the amount of rental income, and a
loss may not be used to reduce other rental income. If property is rented or leased to realize a profit and also not operated as a business activity, losses may be offset against
other rental or royalty income.
IMPORTANT: If the property is located in another
state or country, the complete address of the property
must be included in the address field.

SECTION II
INCOME AND EXPENSES
Enter amounts under the corresponding initial of the property
from Section I.
LINE a
Indicate the ownership of the property:
● Complete the T (taxpayer) oval to indicate the property
was owned by and the net income (loss) reported is from
the taxpayer whose name appears on the name line;
● Complete the S (spouse) oval to indicate the property
was owned by and the net income (loss) reported is
from the spouse listed on a PA-40, Personal Income Tax
Return, filed using the Married, Filing Jointly filing status; or
● Complete the J (joint) oval to indicate the property
was owned by and the net income (loss) reported is
from both the taxpayer and spouse.
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IMPORTANT: One spouse may not use a loss to reduce the income of the other. Each spouse must
determine his/her net income (loss) from rents, royalties,
patents and copyrights separately.
LINE b
A response to the question regarding whether each property
on which income and/or expenses is being reported is located within Pennsylvania must be provided. Fill in the “Yes”
oval if the property is located within Pennsylvania. Otherwise,
fill in the “no” oval.
LINE c
Rental properties with property type 3 typically have rental
periods less than 30 days and require additional considerations regarding the class of income in which they should be
reported. If the rental of the property includes additional
services being provided to the renters such as those provided with a bed and breakfast, the rental contract is procured through an online short-term rental site or the vacation
property rental period by a renter is less than 30 days, complete the “yes” oval and report the net income or loss for
such properties on Line 21 and include the amount on Line
4 of the PA-40.
Rental properties with property types 1, 2, 4, 5, 7 and 8, or
a vacation property with a rental period by the same renter
for 30 days or more, are classified as rents. Complete the
“No” oval and report the net income or loss for such properties on Line 22.

LINE 1
Enter the gross rent from the rental of real estate or other
tangible personal property (including personal property
leased with real estate) held for investment or speculation.
Include income received for renting a room or other space.
If services or property were received as a substitution for
rent paid in cash or cash equivalents, report the fair market
value of such services or property as rental income.

LINE 2
Enter the gross royalties from oil, gas, mineral properties,
and other property. Oil and gas royalty payments received
from mineral rights located under a farm are not considered
farm income and should be reported on PA Schedule E.
CAUTION: Property damages resulting from the construction of temporary structures such as staging
areas are taxable as rental income on Schedule E. Most
contracts require the lessor to mitigate damage and restore
the property to its original condition, thus no “damage” actually occurs. Payments received for the granting of a permanent right of way or an express easement of 15 years or
more should be reported on Schedule D as a gain of the
sale or disposition of property. Otherwise, payments received for temporary access to another property for a temporary easement or right of way are included as rental
income. Report the amount of royalty income from oil and
gas leases separately from any rental income for the same
property. When reporting royalty income, use the gross
amount of income reported on federal Form 1099-MISC.
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LINE 3
Enter the amount of any advertising expense incurred to notify potential renters of the property’s availability for rental.

LINE 4
Enter the ordinary and necessary auto and travel expenses
related to rental activities, including 100 percent of meal expenses incurred while traveling away from home. Generally,
either the actual vehicle expenses or the standard federal
mileage rate may be used as a deduction.

LINE 5
Enter the amount of any cleaning and maintenance
expenses for the property.

LINE 6
Enter the amount of any commissions paid to obtain rentals
for the property.

LINE 7
Enter the amount of insurance expense paid for the property.

LINE 8
Enter any legal and professional fees paid for the property.

LINE 9
Enter the amount of any management fees paid for the property.

LINE 10
Enter the amount of mortgage interest paid for the current
year to banks or other financial institutions.

LINE 11
Enter the interest paid on the purchase of other property.
Generally, to determine the interest expense allocable to the
rental activities, records to show how the proceeds of each
debt were used must be present. Pennsylvania does not follow federal rules regarding prepaid interest.

LINE 12
Enter the cost of repairs made to keep a property in good
working condition. Repairs (fixing a broken lock or painting
a room) generally do not add significant value to the property
or extend its life. Improvements that increase the value of
the property or extend its life (such as replacing a roof or
renovating a kitchen) must be capitalized. Such costs cannot be expensed in full in the year paid or incurred.

LINE 13
Enter the cost of supplies purchased for a property.
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LINE 14
Enter the amount of taxes paid that are directly related to
the rental activity. Deduct the proportionate share of real
estate taxes. Taxes based on income may not be deducted.
Deductions for gross receipts and business privilege taxes
are permitted.

LINE 15
Enter the cost of all utilities paid for the rental property. Ordinary and necessary telephone calls related to rental activities or royalty income may be included. However, the base
rate (including taxes and other charges) for telephone service for the first telephone line into a residence is a personal
expense and is not deductible.
CAUTION: Certain utilities, which are not subject to
sales and use tax when purchased exclusively for residential use, become subject to sales and use tax when
used for a commercial purpose. Commercial purpose includes rental property owned by an individual and held out
for rent by another individual or business. Exceptions include properties with separate metering for rental units and
common areas where the common area utilities are included
as used for commercial purposes and the rental unit property is residential rental property where the utilities are paid
for by the tenants. If the utilities expense includes electricity,
natural gas, fuel oil, and/or kerosene and the property is not
listed as commercial property with the utility company or as
a commercial entity with the fuel oil or kerosene supplier,
use tax is also due on the related expense amounts for
these utility expenses. The use tax on these utilities should
be paid via the online Use Tax Return, or if you are required
to file a sales tax return, as part of that return. Please visit
the myPATH website at mypath.pa.gov to file the Use Tax
Return or to register for a use tax account if you have regular
recurring use tax liability on utilities.

LINE 16
Any depreciation method permissible under generally accepted accounting principles and practices, including federal accelerated depreciation methods, may be used to
calculate depreciation expenses as long as the method is
consistently applied.
Pennsylvania personal income tax law does not conform to
federal law allowing bonus depreciation expense elections.
Effective January 1, 2023 Pennsylvania personal income tax
law conforms to the federal IRC §179 limitations in regards
to the IRC §179 deduction and total purchase limit of eligible
IRC §179 property. Note, if you have income/loss from more
than one business, profession or farm you may not deduct
more than the IRC §179 deduction and the IRC §179 deduction is phased out when aggregate eligible purchases
exceeds federal limits.
IMPORTANT: The Pennsylvania Tax Reform Code of
1971 (as amended) further requires that taxpayers use
straight-line depreciation if an asset’s basis for determining
depreciation is different from its basis for federal income tax
purposes. Therefore, assets on which federal bonus
depreciation have been taken, or on which federal like kind
exchange rules have been applied, must use straight-line
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depreciation for Pennsylvania personal income tax
purposes.
NOTE: For each asset, straight-line depreciation must
be calculated, unless not using an optional accelerated depreciation method. Straight-line depreciation
for the assets must be calculated in order to determine the
adjusted basis of the asset in the event of a sale of the property and net rental losses from the property were not able
to offset other net rental income.

LINE 17
Enter the amount of other expenses incurred for the property. Include on this line any production costs, transmission
costs, or gathering fees taken as a direct deduction by
the lessor from royalty payments. Please itemize all expenses included on this line.

LINE 18
Add the amounts on Lines 3 through 17 and enter the result
for each property.

LINE 19
If Line 18 is smaller than Line 1 or Line 2, subtract Line 18
from Line 1 or 2 and enter the result for each property.

LINE 20
If Line 18 is greater than Line 1 or Line 2, subtract Line 1 or
2 from Line 18 and enter the result for each property and fill
in the oval.
NOTE: PA law does not permit losses from property
rented where there is no intent to realize a profit.

LINE 21
For all properties answering “Yes” to Section II, Line c, add
the amounts for Lines 19 and 20. If a net loss, fill in the oval.
Include the amount on Line 21 - along with any other net income or loss amounts from: Line 1 of all Schedule(s) RK-1
or NRK-1 for PA S corporation(s); Line 1 and Line 12 of all
Schedule(s) RK-1/Line 1 and Line 10 of all Schedule(s) or
NRK-1 for partnerships; Line 39 of PA Schedule(s) C; and/or
Line 39 of PA Schedule(s) F - on Line 4 of the PA-40, Personal Income Tax Return, or on Line 3 of the PA-41, Fiduciary Income Tax Return.
CAUTION: If any property has rental periods of less
than 30 days and the same property has rental periods
of 30 days or more, enter the property as two separate properties on Schedule E and provide the income and expenses
for each rental period length.
IMPORTANT: For Line 21, amounts reported on Line
4 of the PA-40, Personal Income Tax Return, filed
using the Married, Filing Joint filing status must be calculated separately. If a taxpayer and spouse are reporting income and losses, a taxpayer’s income may not be offset
by a spouse’s loss and vice versa. All joint income and
losses must be split equally when calculating net income
(loss) for the taxpayer and spouse. If both the taxpayer and
spouse have net income or net loss from all income sources
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(including PA S corporations and partnerships) the amounts
may be added together for the taxpayer and spouse and
the result entered on Line 4 of PA-40, Personal Income Tax
Return. If the taxpayer has net income and the spouse has
a net loss (or vice versa), the net income amount separatelycalculated for the taxpayer or spouse must be entered on
Line 4 of the PA-40, Personal Income Tax Return.
NOTE: Pennsylvania does not follow federal At-Risk
Rules or Passive Activity Loss Rules.

LINE 22
For all properties answering “No” to Section II, Line c, add
the amounts for Line 19 and 20. If a net loss, fill in the oval.
NOTE: Pennsylvania does not follow federal At-Risk
Rules or Passive Activity Loss Rules.

LINE 23
Enter the rent and royalty income (loss) amounts from PA S
corporations and Partnerships reported to the taxpayer
and/or spouse on PA Schedule(s) RK-1 or NRK-1. If PA
Schedules RK-1 or NRK-1 are not provided, enter the
amount from the federal Schedule K-1. Include a statement
providing the entity name and federal employer identification number along with the income (loss) by entity if rent or

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royalty income (loss) from any pass-through entity is reported on this line.

LINE 24
Add Lines 22 and 23. Include the total on Line 6 of the PA40, Personal Income Tax Return, or on Line 5 of the PA41, Fiduciary Income Tax Return.
IMPORTANT: For Lines 23 and 24, net income (loss)
for rents, royalties, patents and copyrights for a taxpayer and spouse on a PA-40, Personal Income Tax Return,
filed using the Married, Filing Joint filing status must be calculated separately. If a taxpayer and spouse are reporting income and losses, a taxpayer’s income may not be offset
by a spouse’s loss and vice versa. All joint income and
losses must be split equally when calculating net income
(loss) for the taxpayer and spouse. If both the taxpayer
and spouse have net income or net loss from all their properties (including PA S corporations and partnerships) the
amounts may be added together for the taxpayer and
spouse and the result entered on Line 24 of Schedule E,
and Line 6 of the PA-40, Personal Income Tax Return. If the
taxpayer has net income and the spouse has a net loss (or
vice versa), the net income amount separately calculated
for the taxpayer or spouse must be entered on Line 6 of
the PA-40, Personal Income Tax Return.

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