Selling Guide

Published June 3, 2020

The Selling Guide is organized into parts that reflect how lenders generally categorize various aspects of their business relationship with Fannie Mae. To begin browsing, select from any of the sections below. You may also download the entire Selling Guide in PDF format.

View All Selling Policy Updates

Download PDF

Hint: Ask in a form of a question.

For best results, pose your search like a question.

B3-3.3-05, Income or Loss Reported on IRS Form 1040, Schedule E (09/30/2014)


This topic contains information on income or loss reported on IRS Form 1040, Schedule E, including:



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 B3-3.3-07, 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 B3-3.1-09, Other Sources of 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.

Have You Tried Ask Poli?

Poli knows. Just ask.

Ask Poli features exclusive Q&As and
more—plus official Selling & Servicing

Try Ask Poli

Related Articles

B3-3.3-01, General Information on Analyzing Individual Tax Returns (06/05/2019)

IntroductionThis topic contains general information on analyzing individual tax returns.  Analyzing Individual Tax ReturnsIn analyzing a self-...

Read more

B3-3.3-02, Income Reported on IRS Form 1040 (05/15/2012)

IntroductionThis topic contains information on income reported on IRS Form 1040, including: Overview  Wages, Salary, and Tips  Interest and...

Read more

B3-3.3-03, Income or Loss Reported on IRS Form 1040, Schedule C (04/01/2009)

IntroductionThis topic contains information on income or loss reported on IRS Form 1040, Schedule C, including: Income (or Loss) from a Sole...

Read more

Have guide questions? Get answers to all of your policy questions, straight from the source.

Get Started
Having Issues with Seeing this Page Correctly?

Use Firefox or Chrome   How to do a hard refresh in Internet Explorer
We recommend that you use the latest version of FireFox or Chrome.

Download Firefox
Download Chrome
  A hard refresh will clear the browsers cache for a specific page and force the most recent version of a page.
    Hold the Ctrl key and press the F5 key.

Email Us
If you still have Technical Support questions, feel free to