Rental Property Profit and Loss Statement for a Lender

What does a lender want for rental property: a profit and loss statement, Schedule E or leases?

A lender wants rent and expenses for each rental that agree with your filed return, plus the leases and bank records behind them. This guide uses Fannie Mae's public rule as the common example: its Selling Guide starts from your latest signed Form 1040 with Schedules 1 and E, not from a new profit and loss statement. Portfolio, bank and debt-service-coverage loans set their own formulas, and may want leases and a rent roll for every unit.

Ask the lender why it wants a profit and loss statement, which period and basis, which items it adds back, who may prepare it, and the format and due date. If it is to cover months since the last return, build it for those months and tie it to the return.

A case is not simple when a loan application is open with a deadline, when books sit in a spreadsheet or are behind, when a property was bought or sat vacant since the last return, when an LLC or S corporation holds the rentals, or when the statement, bank deposits, manager's statements and return disagree.

Gather before you start:

• Schedule E (or Form 8825) for the last two years, with the depreciation schedule.
• Leases and a rent roll: unit, tenant, monthly rent, lease dates.
• Bank statements for every account that receives rent or pays property costs.
• The property manager's owner statements.
• Mortgage statements, property tax bills and insurance bills.
• Proof of the payment on your own home (rent or mortgage) if your credit report does not show it. Fannie Mae needs it unless you have a year of rent from the property (rule).
• The closing statement for anything bought since the last return.

Which period and basis should the profit and loss statement use?

Use the period the lender names, on the same accounting basis as your return. Most individuals report rental income on the cash method: income when received, expenses when paid, and advance rent in the year it arrives (Publication 527). A statement built on the accrual method puts rent and bills in different months than Schedule E does.

Fannie Mae's rental rules do not say whether to use year to date or the last 12 months. They average the Schedule E result over 12 months, or over the months a property was in service when a lease may be used (rule). State the period and the basis at the top of the statement, and show months separately so the lender can average them. For when a lender asks for a current statement, see proving income to a lender.

How do I lay out the statement so each line matches Schedule E?

Give each property its own column and use Schedule E's income and expense lines as your categories, so every figure lands on a line of the return. Schedule E uses a separate column for each property, and more than three properties take more sheets, with the totals on one.

Source: the Schedule E form. Line 22 is the loss allowed after the passive activity limit, so it belongs to the return, not the monthly statement. The 2026 draft form splits line 13 into 13a, vehicle loan interest, and 13b, other interest.

If you co-own a rental, show your share of each line: a part owner deducts expenses according to the percentage owned (Publication 527). Spouses and unequal shares can change how it is filed; see co-owned rental: Schedule E or partnership return.

Under the net line, add a short block of the amounts a lender may add back: depreciation, interest, taxes, insurance and association dues. It gives the lender the inputs without redoing your math. Fannie Mae publishes worksheets, Forms 1038 and 1038A, that lenders may use for the calculation (general rules).

If a partnership or S corporation holds the rentals, follow Form 8825 instead. It numbers lines differently: gross rents on 2a, interest on 8, real estate taxes on 10, depreciation on 14 and other deductions on 17, with no management fee line.

What is not an expense on the statement?

Loan principal, security deposits, owner draws and improvements stay off the expense lines. Each has a different home.

Repairs keep a property in ordinary working order, such as fixing a lock or painting a room, and go on the repairs line. Small-item and routine-maintenance safe harbors can change the answer for some costs; see rental property taxes.

Why does a lender add back depreciation, and what else?

Depreciation spreads a building's cost over its recovery period, generally 27.5 years for a residential rental building (Publication 527, Publication 946), so no cash leaves your account in the year it is deducted. A lender that works from cash flow adds it back.

Fannie Mae's method adds back more than depreciation. It adds the items below to the Schedule E net, divides by the months, then subtracts the full monthly payment (rule).

The full payment is principal, interest, taxes, insurance and other assessments (glossary). Counting interest, taxes and insurance in both the net and the payment would charge the property twice (Schedule E topic).

Other lenders choose their own add-backs. Ask which apply, and label any one-time cost on the statement with its invoice.

Why can Schedule E show a loss while the lender counts positive income?

Schedule E subtracts depreciation, which costs no cash that year, and a lender's cash flow method adds it back. A property that loses money on the return can show positive cash flow.

The passive activity loss rules can also limit the rental loss you may deduct: Schedule E line 22 shows the loss allowed after the limit. Fannie Mae tells lenders to watch passive loss limits and carryovers (Schedule E topic).

It also runs the other way. For a rental that is not the borrower's principal residence, Fannie Mae adds a positive result to income and a negative result to monthly obligations. Positive rental income counts in full only with 12 months of landlord experience. A return showing 365 fair rental days documents it; if the days fall short, a 12-month lease or two years of returns can in some cases. With less experience, positive income can only offset the payment (general rules).

Per property or combined, and how do I show a vacant unit or a new purchase?

Show each rental in its own column with a total column. Fannie Mae calculates each rental other than the one being financed separately, then adds the results (general rules).

A unit held for rent but empty stays on the statement with its expenses and zero rent for the empty months. The IRS lets an owner deduct ordinary expenses and depreciation on property held for rent while it is vacant, but not the lost rent (Publication 527). When a property was out of service part of the year, Fannie Mae has the lender check that Schedule E shows fewer than 365 fair rental days and repairs that reflect renovation (rule).

For a new purchase, show the closing date and the date the property was ready and available for rent, when depreciation and rental expenses start (Publication 527); see rental expenses before the first tenant for earlier costs. Pair it with the lease, the closing statement and two months of deposits. If the property is not yet on a filed Schedule E, Fannie Mae counts 75% of the lease rent and subtracts the full payment (rule).

What if an LLC, partnership or S corporation holds the rentals?

The statement then follows how the entity files. An LLC with one owner that has not elected corporate treatment is disregarded: its activity is generally reported on the owner's own return, and rental real estate is normally on Schedule E, so the layout above applies. An LLC with two or more members is a partnership unless it elects corporate treatment, and spouses who own through an LLC cannot elect qualified joint venture treatment (Schedule E instructions). In a community property state, spouses who are an LLC's only owners and hold it as community property may instead treat it as disregarded; the IRS accepts either position, and a later change counts as a conversion (IRS). A partnership or S corporation reports on Form 8825.

Fannie Mae reads rental income reported through a partnership or S corporation as self-employment income, not as Schedule E, and applies its full self-employed documentation rules when ordinary income also appears on a Schedule K-1 (rule). See proving income to a lender and Schedule C income for a mortgage.

How do I tie the statement to bank statements, the manager's statement and the filed return?

Every line should trace to a bank record, and each year's totals should match the filed return or have a written reason they do not.

1. Reconcile each account that receives rent or pays property costs through the statement end date. The IRS tells businesses their bank statement, checkbook and books should agree.
2. Record gross rent and the manager's fee separately, not the net deposit. See turning an owner statement into books.
3. Code each deposit as rent, tenant deposit, loan proceeds or owner money.
4. Compare interest to the Form 1098 from your mortgage lender, and keep principal off the statement. Interest follows how the loan money was used, so interest on cash you took out for personal spending is not a rental expense (instructions). If your payment includes an escrow, split it into principal, interest and escrow; the chart of accounts for rental property shows where each goes.
5. Take depreciation from the tax depreciation schedule (line 18). If the books lack a current-year figure, mark it as an estimate or show it only in the add-back block.
6. Put the last filed year's statement next to Schedule E, line by line. Explain each gap: a tax-time depreciation entry, a cost the return treated as an improvement, or the passive loss limit.

Can a spreadsheet template or accounting software produce this statement?

Yes, if it tracks each property separately, uses the Schedule E lines from the table above and reports on your return's basis, usually cash. In a spreadsheet, use one column per property, months across, and a deposit list behind each rent line. See spreadsheet or software for rental books and the chart of accounts for rental property.

Who prepares the statement, and does it need a CPA signature or a transcript?

Fannie Mae's rental topics ask for signed returns, leases and bank evidence, and do not call for a CPA signature. Whether a lender accepts a statement you prepare yourself is its call, so ask before paying anyone.

Fannie Mae requires a lender to use any IRS transcript it receives before closing to verify what you gave it (rule), so a statement that disagrees with the filed return may stand out. For transcripts, Form 4506-C and CPA letters, see proving income to a lender.

What if my books are behind or the numbers do not reconcile?

A statement that disagrees with the return or the deposits invites questions, and when a lease is used, Fannie Mae requires any gap between documented rent and the lease to be explained (general rules). Reconcile what you can. List each remaining difference by property and period, with its reason, and do not adjust the statement to force a match.

If months are missing, reconstruct them from bank statements and manager statements before building anything; see catching up on rental property books.

Some cases need professional judgment: a return that left out rent, several years of missing books, deposits mixed with personal money (see a separate bank account for each rental), or a difference you cannot explain from the records.

Example

These examples use US dollars and round numbers. Lenders differ; the calculations follow Fannie Mae's published method.

Three rentals with depreciation

A landlord has three rentals on the last filed Schedule E, each rented all year, with $90,000 of rent, $66,000 of cash expenses (interest $30,000, taxes $12,000, insurance $5,000, repairs $8,000, management $7,200, other $3,800) and $22,000 of depreciation. Schedule E net is $90,000 − $66,000 − $22,000 = $2,000. Before depreciation it is $24,000.

Fannie Mae's method runs for each property and adds the results. On the combined totals:

1. Add back depreciation, interest, taxes and insurance: $2,000 + $22,000 + $30,000 + $12,000 + $5,000 = $71,000 a year, or about $5,917 a month.
2. Subtract the full monthly payment, $5,000 ($60,000 a year: $30,000 interest, $13,000 principal, $12,000 taxes, $5,000 insurance).
3. Net rental income is about $917 a month, counted in full only with 12 months of landlord experience.

Had depreciation been $27,000, Schedule E would show a $3,000 loss, but the cash flow before depreciation would still be $24,000.

Refinancing a duplex

A landlord refinances an investment duplex (neither unit is the landlord's home) that rents for $4,000 a month; the new full payment, with taxes and insurance, is $3,200. If the duplex is on the last filed Schedule E, the lender starts from that return's cash flow, averaged by month, then subtracts the payment, so the statement and the return must agree. If it is not, the lender takes 75% of the lease rent, $3,000, and subtracts the payment (refinance rule): −$200 a month, which counts as an obligation. Either way, an appraiser's rent schedule (Form 1007 or 1025) must support the rent, and a lease needs recent deposits that match. If the landlord lives in one unit, that unit's rent cannot count, and Fannie Mae adds the other unit's rent to income and the full payment to obligations without netting (general rules).

A rental bought mid-year

A landlord buys a fourth rental in June, well over 45 days before the loan application, and signs a 12-month lease. The year-to-date statement shows six months of rent for it. The property is not on any filed Schedule E, so the lender asks for the lease, the closing statement and two months of deposits that match the lease. The first three rentals come from the filed return.

Different for you?

• A loan application is open and your books are behind, in a spreadsheet, or do not match the return or the manager's statements: a lender-ready statement needs reconciled books first. See catching up on rental property books, or ask for bookkeeping help with the lender's checklist, the deadline, the filed returns and the statements.
• An LLC, partnership or S corporation holds the rentals: see books for an LLC per rental property and proving income to a lender.
• You also have self-employed income to prove: see Schedule C income for a mortgage.
• Rent was left off a return, or rental years were never filed: see amending for income left off past returns and catching up on unfiled returns.
• The rental is short-term, or you give tenants significant services such as maid service: those services decide whether it belongs on Schedule C rather than Schedule E (instructions), and Fannie Mae has a separate rule when the one-unit short-term rental is the property being financed.
• You are unsure what counts as a repair, an improvement or depreciation: see rental property taxes.