Updated: February 8, 2023
Claim rental, royalty, and a Real Estate Mortgage Investment Conduit (REMIC) on federal Schedule E. Then, report the net income or loss on Massachusetts Schedule E, Line 1a or 1b.
Expenses related to these types of income are deducted from Massachusetts gross income to the extent they are deducted from federal gross income, with certain exceptions. Allowable expenses may include:
- Depreciation
- Depletion
- Repairs and improvements
- Property taxes
- Cleaning and maintenance
- Utilities
- Fire and liability insurance
- Ordinary and necessary transportation expenses
There are certain differences between total rental, royalty and REMIC income on the federal return and the same type of income on the Massachusetts return. Enter these differences as adjustments on Massachusetts Schedule E, Line 2, and include the following:
- Fiduciary trust income or loss that is reported on Form 2 - Massachusetts Fiduciary Return - Do not report on Massachusetts Schedule E
- Passive losses from the tax year 1987 - Add this back to income since you already claimed these losses for Massachusetts tax purposes, but also carried them over for U.S. tax purposes because of the passive activity loss limitation rules
- Massachusetts business trust income or loss that you reported on Form 3F - Income Tax Return of Corporate Trust - Do not report on Massachusetts Schedule E. If, however, the business trust income comes from a Real Estate Investment Trust (REIT) or a REMIC, then the income is reported directly by the beneficial owner. Report ordinary income from a REIT or a REMIC, organized as a business trust in Massachusetts, on Schedule E
If you qualify for the abandoned building renovation deduction, report it on Schedule E, Part 1. This will increase any loss or reduce any income that has already been calculated.
Rent
Rental income includes amounts you received as rent, for the use of depreciable property used in a trade or business. Security deposits are not rent unless you don't return them to the tenant.
Royalties
Royalties are income you receive from:
- Copyrights on literary, musical, or artistic works and similar property
- Patents on inventions
- Oil
- Gas
- Other mineral properties
- Timber
- Coal
- Domestic iron ore
Include this income in your Massachusetts gross income.
Royalties from certain U.S. energy conservation patents that have been approved by the Massachusetts Division of Energy Resources as useful for energy conservation or alternative energy development are deductible. Include this as an adjustment on Massachusetts Schedule E, Line 2
REMIC
REMIC is a fixed pool of mortgages with multiple classes of interests held by investors who hold either a regular or residual interest.
Since it is not a taxable entity for federal income tax purposes, it's generally treated as a partnership, with the residual interest holders considered as partners.
Include income or losses from REMICs in your Massachusetts gross income.
Reporting on your original tax return
- If the expenses are less than income, report the difference as net income. If the expenses are more than gross income, report the difference as a net loss.
- You must report your income/losses electronically.
- Complete Schedule E, Part 1.
- Enter the amount on MA Form 1, Line 7 or MA Form 1-NR/PY, Line 9.