How is Rental Income Calculated? (Schedule E + Lease Agreements)

Rental Income (Schedule E + Lease Agreements)

Rapidio’s Income Analysis Tool stands out as a comprehensive solution, simplifying the process of assessing rental income with precision and ease. One key feature is our ability to seamlessly integrate data from both tax returns and lease agreements, providing a holistic view of rental income sources. 

For Schedule E Rental income, tax returns including all attachments are required. Rapidio is able to pull the data from these returns for each property, and provide an accurate and fast calculation.

  1. The analysis starts by processing the number of Fair Rental Days into the most accurate Monthly number.
  2. Rents Received (Schedule E, Line 3).
  3. Minus the Total Expenses (Schedule E, Line 20).
  4. Add back in the Insurance (Sched E, Line 9).
  5. Add Mortgage Interest (Schedule E, Lines 12 and 13).
  6. Add Taxes (Schedule E, Line 16).
  7. Add Depreciation and/or Depletion (Schedule E, Line 18).
  8. Add back any HOA dues (These should be specifically identified on Schedule E).
  9. Add any One-Time Extraordinary Expenses (Casualty Loss – Need evidence of this expense).
  10. Sum of steps 2-10 for the Annual Gross Rental Income (or Loss).
  11. Divided by the Monthly conversion from the Fair Rental Days to get the Monthly Gross Rental Income.
  12. Minus the Monthly PITIA (if applicable).
  13. This number is the Net Monthly Rental Income (or Loss).

When calculating the income from lease agreements, Rapidio’s Income Analysis system is able to pull the monthly lease data from the lease agreement to make a calculation within seconds. According to Fannie Mae guidelines, the lender must calculate the rental income by multiplying the gross monthly rent by 75%. The remaining 25% of the rent is absorbed by vacancy losses and ongoing maintenance expenses. 

  1. Identify the amount of monthly rent as agreed upon in the lease agreement.
  2. Multiply the monthly rent by 75%.

For more information about documentation requirements and income qualifiers for Schedule E and Lease rental income, we encourage you to review the Fannie Mae and Freddie Mac guidelines.