Since Congress has been to busy playing partisan games, they have left taxes alone for the most part. So, needing something to do, the IRS has been revising tax forms. Okay, there is a reason for all these changes and it’s not a really a whim.
To try to cut the tax gap, Congress had previously passed into law new 1099 reporting rules. These have resulted in a major revision to the Sch D and the creation of Form 8949 to document the totals on the Sch D. Sch C and F now have lines to report income from credit and debit cards separately from other income. They also have a checkbox if there are expenses that should have had a 1099 issued and if the taxpayer did that. The Sch E also has the same changes as the business and farm schedules but also some special changes of its own.
The Schedule E-Supplemental Income and Loss is a catch all type of form. The first page is used to report rental and royalty income and expenses for 3 properties. The second page brings in the K-1 information from Partnerships, S- Corps, Estates and Trusts. This year, the second page is unchanged but the first page requires a lot more info than in previous years.
To begin with, the IRS now wants more info about the property generating the income. They want the full address of the property and I understand that Modernized e-File requires that info to file the return. No short cuts or partial info allowed. And the property type now is identified by standardized property types; single family, multi-family, royalty, etc. The personal use days and rental days must be on the form for each property. Before, we just had a yes or no check box to verify if the taxpayer met the personal vs rented rules. Now we need the actual days. And there are the same questions about needing and issuing 1099s as on the Sch C and F.
Now to income. The new Sch E does have a line to enter credit/debit card payments and a second line to report other income. One difference the Sch E has from the C and F is that it allows the taxpayer to adjust for sales tax, cash back and tips that could be included on the 1099K. Line 3a is credit/debit income, line 3b is non-line 3a income and line 4 is not the total of 3a and 3b but “total not including amounts on Line 3a that are not income.”
The final major change to the Sch E is the total section. The side column of totals is gone and replaced by dedicated lines at the bottom. Credit/debit card income and total income are broke out for rental vs royalty properties. And mortgage interest, depreciation and total expenses have moved from the side to the bottom.
While the new form is still identifiable as the Sch E, there have been a lot of changes to it. We’ll see if the changes help decrease the tax gap or just made a confusing form even more confusing.