Pacun, I'm shooting from the hip here, without any research to back me up. I'd say the $200 rental income goes on Sch E just like any other rental income. However, an allocable portion of the translator's rent expense should go on Sch E as an expense. This will reduce his Sch C expenses and, to some extent, increase his SE income. I'll leave it up to you to determine how much rent expense to move to Sch E.