Interest Income on Checking account opened for rental activity

I have opened an interest bearing checking account for a rental property. Should the interest on this checking accoun be reflected in the schedule B or as other income on Schedule E?

I'd put it on a B.

Interest income is by definition investment income. Rental income is by definition passive income income. Therefore you cannot post interest income on the Sch E.

While I agree that rental income is generally passive income, it is not passive income "by definition." In fact sometimes rental income can be investment income, or even business income, depending on the owner's participation in managing the property. ___ Stu

I've never heard of it being investment income, though it can be Schedule C income if renting is spend a lot of hours renting, like maintaining the place and/or doing laundry all the time, as if that were your full time job. I have no idea why anyone would do this because then they get hit with SE tax, although losses are unlimited.

I agree that it goes on Schedule B for two reasons. Suppose your rental income is -1000 (ie. it is a loss) but because your AGI over

150k you cannot take the loss and it gets carried over. If you have $200 if rental interest on Schedule E then your rental income is increased to -800 and you still can't take the loss so your tax due does not change, whereas if you put the interest on Schedule B your carryover is 1000 but you get to pay tax on Schedule B. Of course in future years, if the rental turns to a profit, you will have $200 more loss because you never got to claim it on Schedule E. But this way, the IRS gets their ounce of blood up front.

Since it is on Schedule B, you can deduct more investment expense (investment expense can be deducted to the limit of your investment income, which includes interest income, short term capital gains, and long term capital gains you choose to treat as short term).

If you were handling your rental as an S corp or LLC filing 1120S or

1065, then the income would end up in the interest section of that form, but would then go the interest line of K-1, and would then go to Schedule B.