source:
  type: guide
  id: fnma-sel-b3-3.6-05
  authority: Fannie Mae Selling Guide B3-3.6-05 — Income or Loss Reported on IRS Form
    1040, Schedule E
  description: Fannie Mae Selling Guide B3-3.6-05 — Income or Loss Reported on IRS
    Form 1040, Schedule E.
  coverage_tier: operative
obligations:
- id: fnma-sel-b3-3.6-05-full
  canonical_id: fnma-sel-b3-3.6-05-full
  section: Fannie Mae Selling Guide B3-3.6-05 — Income or Loss Reported on IRS Form
    1040, Schedule E
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B3-3.6-05 — Income or Loss Reported on IRS
      Form 1040, Schedule E
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B3-3.6-05, Income or Loss Reported on IRS Form 1040, Schedule
      E (09/30/2014) Introduction This topic contains information on income or loss
      reported on IRS Form 1040, Schedule E, including: Overview Royalty Income Rental
      Income Published May 6, 2026 378 Overview Income received from rents, royalties,
      and distributions from partnerships, corporations, estates, trusts, etc., is
      calculated on IRS Form 1040, Schedule E, and transferred to IRS Form 1040. Rather
      than using Schedule E for income related to distributions from partnerships,
      corporations, estates, and trusts, the lender should rely on Schedule K-1 (see
      B3-3.6-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule
      K-1). Royalty Income Schedule E should be used to determine the supplemental
      income to use for royalties. The lender must include the total amount of royalty
      payments received, and must document the borrower’s receipt of royalty income
      for 12 months and the likelihood of continued receipt of such income for at
      least three years (see B3-3.4-13, Royalty Payment Income). Rental Income If
      rental income is reported on Schedule E, only the rental income that relates
      to properties shown on the Schedule of Real Estate Owned on the borrower’s loan
      application should be included. All regular and ongoing expenses for the properties,
      such as maintenance, advertising, management fees, utilities, homeowners’ association
      dues, and supply costs, should be subtracted from the borrower’s cash ﬂow. Depending
      on the approach used to calculate cash ﬂow, adjustments will need to be made
      for depreciation and any one-time extraordinary expenses, such as the costs
      of repairing damage that resulted from a natural disaster. In most situations,
      the full amount of the mortgage payment for a rental property will be factored
      into the net rental income calculation, but it may also be counted as part of
      the liabilities that are considered in the calculation of the borrower’s total
      debt-to-income ratio. Therefore, the lender must add back any portion of the
      mortgage payment, including interest, taxes, and insurance, necessary to avoid
      double counting of these expenses. The lender must pay particular attention
      to the eﬀect of “passive loss” limitations or prior “carryovers” related to
      the borrower’s rental properties and, depending on the method it uses for the
      cash ﬂow analysis, make any special adjustments necessary to account for them.
      Recent Related Announcements There are no recently issued Announcements related
      to this topic. Published May 6, 2026 379'
  judgment: false
