2018

Partner's Instructions for 

Schedule K-1 (Form 1065)

Partner's Share of Income, Deductions, Credits, etc.

(For Partner's Use Only)

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code 

unless otherwise noted.

Future Developments

For the latest information about 

developments related to Schedule K-1 (Form 

1065) and the Partner's Instructions for 

Schedule K-1 (Form 1065), such as 

legislation enacted after they were 

published, go to IRS.gov/Form1065.

What’s New

• Qualified business income deduction. For 

tax years beginning after 2017, individuals, 

estates, and trusts may be entitled to a 

deduction of up to 20% of their qualified 

business income from a trade or business. 

For more information, see section 199A and 

Pub. 535, Business Expenses. Also, see 

Codes Z through AD, Deduction for qualified 

business income, under Box 20. Other 

information.

• In Part II, item K, the entry spaces were 

expanded to reflect beginning and ending 

partner’s share of liabilities.

• New box 6c, Dividend equivalents, has 

been added to report section 871(m) 

income.

• For box 11, Other income (loss), code F 

indicates section 951A GILTI income.

The following codes have been added or 

changed as a result of the Tax Cuts and 

Jobs Act.

• Box 11, code G has been added for 

section 965(a) inclusion.

• Box 11, code H has been added for 

subpart F income other than sections 951A 

and 965 income.

• Box 13, Other deductions, Cash 

contributions, code A, have been increased 

from 50% to 60%.

• Box 13, Other deductions, code K, 

indicates excess business interest expense 

under section 163(j). Previous code K, 

Deductions-portfolio (2% floor) has been 

deleted because the itemized deductions 

subject to the 2% AGI floor were suspended 

for periods after 2017.

• Box 13, codes T, U, and V are reserved 

for future use because of the repeal of the 

domestic production activity deduction, 

section 199. Amounts from Form 8903, 

Domestic Production Activities Deduction, 

will be reported using box 13, code W, Other 

deductions.

• Box 13, new code X has been added for 

section 965(c) deduction.

• Box 15, code P is used to report the new 

section 45S credit reported on Form 8994, 

Employer Credit for Paid Family and Medical 

Leave.

• Box 16, Foreign transactions, the 

following new codes have been added.

For foreign gross income sourced at the 

partnership level: code D, section 951A 

category; code E, foreign branch category.

Deductions allocated and apportioned at the 

partnership level to foreign source income: 

code K, section 951A category; code L, 

foreign branch category.

Other information: code U, section 951A(c)

(1)(A) tested income; code V, tested foreign 

income tax; code W, section 965 

information.

• Box 20, new codes have been added for 

the qualified business income deduction: 

code Z, section 199A income; code AA, 

section 199A W-2 wages; code AB, section 

199A unadjusted basis; code AC, section 

199A qualified REIT dividends; code AD, 

section 199A qualified PTP income.

• Box 20, new code AE, excess taxable 

income, and code AF, excess business 

interest income, have been added for 

reporting limitations on the deduction of 

business interest under section 163(j).

• Box 20, new code AG has been added to 

report each partner's share of the gross 

receipts under section 59A(e).

General Instructions

Purpose of Schedule K-1

The partnership uses Schedule K-1 to report 

your share of the partnership's income, 

deductions, credits, etc. Keep it for your 

records. Do not file it with your tax return 

unless you are specifically required to do so. 

(See the instructions for Code O. Backup 

withholding, later.) The partnership files a 

copy of Schedule K-1 (Form 1065) with the 

IRS.

For your protection, Schedule K-1 may 

show only the last four digits of your 

identifying number (social security number 

(SSN), etc.). However, the partnership has 

reported your complete identifying number to 

the IRS.

Although the partnership generally isn't 

subject to income tax, you may be liable for 

tax on your share of the partnership income, 

whether or not distributed. Include your 

share on your tax return if a return is 

required. Use these instructions to help you 

report the items shown on Schedule K-1 on 

your tax return.

The amount of loss and deduction you 

may claim on your tax return may be less 

than the amount reported on Schedule K-1. It 

is the partner's responsibility to consider and 

apply any applicable limitations. See 

Limitations on Losses, Deductions, and 

Credits, later, for more information.

Inconsistent Treatment of 

Items

Generally, you must report partnership items 

shown on your Schedule K-1 (and any 

attached statements) the same way that the 

partnership treated the items on its return.

If the treatment on your original or 

amended return is inconsistent with the 

partnership's treatment, or if the partnership 

was required to but has not filed a return, you 

must file Form 8082, Notice of Inconsistent 

Treatment or Administrative Adjustment 

Request (AAR), with your original or 

amended return to identify and explain any 

inconsistency (or to note that a partnership 

return has not been filed).

If you are required to file Form 8082 but 

do not do so, you may be subject to the 

accuracy-related penalty. This penalty is in 

addition to any tax that results from making 

your amount or treatment of the item 

consistent with that shown on the 

partnership's return. Any deficiency that 

results from making the amounts consistent 

may be assessed immediately.

Errors

If you believe the partnership has made an 

error on your Schedule K-1, notify the 

partnership and ask for a corrected 

Schedule K-1. Do not change any items on 

your copy of Schedule K-1. Be sure that the 

partnership sends a copy of the corrected 

Schedule K-1 to the IRS.

Sale or Exchange of 

Partnership Interest

Generally, a partner who sells or exchanges 

a partnership interest in a section 751(a) 

exchange must notify the partnership, in 

writing, within 30 days of the exchange (or, if 

earlier, by January 15 of the calendar year 

following the calendar year in which the 

exchange occurred). A “section 751(a) 

exchange” is any sale or exchange of a 

partnership interest in which any money or 

Jan 15, 2019 Cat. No. 11396N
other property received by the partner in 

exchange for that partner's interest is 

attributable to unrealized receivables (as 

defined in section 751(c)) or inventory items 

(as defined in section 751(d)).

The written notice to the partnership must 

include the names and addresses of both 

parties to the exchange, the identifying 

numbers of the transferor and (if known) of 

the transferee, and the exchange date.

An exception to this rule is made for sales 

or exchanges of publicly traded partnership 

interests for which a broker is required to file 

Form 1099-B, Proceeds From Broker and 

Barter Exchange Transactions.

If a partner is required to notify the 

partnership of a section 751(a) exchange but 

fails to do so, the partner will be subject to a 

penalty for each such failure. However, no 

penalty will be imposed if the partner can 

show that the failure was due to reasonable 

cause and not willful neglect.

Gain or loss from the disposition of 

your partnership interest may be net 

investment income under section 

1411 and could be subject to the net 

investment income tax. See Form 8960, Net 

Investment Income Tax—Individuals, 

Estates, and Trusts, and its instructions for 

information about how to report and figure 

the tax due.

Three-year holding period 

requirement for applicable 

partnership interests. New section 

1061 increases the required long-term 

capital gains holding period for an applicable 

partnership interest from more than 1 year to 

more than 3 years. The new holding period 

applies only to applicable partnership 

interests held in connection with the 

performance of services as defined in 

section 1061. See section 1061 and Pub. 

541 for details.

Nominee Reporting

Any person who holds, directly or indirectly, 

an interest in a partnership as a nominee for 

another person must furnish a written 

statement to the partnership by the last day 

of the month following the end of the 

partnership's tax year. This statement must 

include the name, address, and identifying 

number of the nominee and such other 

person, description of the partnership 

interest held as nominee for that person, and 

other information required by Temporary 

Regulations section 1.6031(c)-1T. A 

nominee that fails to furnish this statement 

must furnish to the person for whom the 

nominee holds the partnership interest a 

copy of Schedule K-1 and related 

information within 30 days of receiving it from 

the partnership.

A nominee who fails to furnish all the 

information required by Temporary 

Regulations section 1.6031(c)-1T when due, 

or who furnishes incorrect information, is 

subject to a $270 penalty for each failure. 

The maximum penalty is $3,275,500 for all 

TIP

CAUTION

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such failures during a calendar year. If the 

nominee intentionally disregards the 

requirement to report correct information, 

each $270 penalty increases to $540 or, if 

greater, 10% of the aggregate amount of 

items required to be reported, and there is no 

limit to the amount of the penalty.

International Boycotts

Every partnership that had operations in, or 

related to, a boycotting country, company, or 

a national of a boycotting country must file 

Form 5713, International Boycott Report.

If the partnership cooperated with an 

international boycott, it must give you a copy 

of its Form 5713. You must file your own 

Form 5713 to report the partnership's 

activities and any other boycott operations 

that you may have. You may lose certain tax 

benefits if the partnership participated in, or 

cooperated with, an international boycott. 

See Form 5713 and its instructions for more 

information.

Definitions

General Partner

A general partner is a partner who is 

personally liable for partnership debts.

Limited Partner

A limited partner is a partner in a partnership 

formed under a state limited partnership law, 

whose personal liability for partnership debts 

is limited to the amount of money or other 

property that the partner contributed or is 

required to contribute to the partnership. 

Some members of other entities, such as 

domestic or foreign business trusts or limited 

liability companies that are classified as 

partnerships, may be treated as limited 

partners for certain purposes.

Nonrecourse Loans

Nonrecourse loans are those liabilities of the 

partnership for which no partner or related 

person bears the economic risk of loss.

Elections

Generally, the partnership decides how to 

figure taxable income from its operations. 

However, certain elections are made by you 

separately on your income tax return and not 

by the partnership. These elections are 

made under the following code sections.

• Section 59(e) (deduction of certain 

qualified expenditures ratably over the period 

of time specified in that section). For details, 

see the instructions for code J in box 13.

• Section 108(b)(5) (election related to 

reduction of tax attributes due to exclusion 

from gross income of discharge of 

indebtedness).

• Section 263A(d) (preproductive 

expenses). See the instructions for code P in 

box 13.

• Section 617 (deduction and recapture of 

certain mining exploration expenditures).

• Section 901 (foreign tax credit).

Additional Information

For more information on the treatment of 

partnership income, deductions, credits, and 

other items, see Pub. 535, Business 

Expenses.

To get forms and publications, see the 

instructions for your tax return or visit the IRS 

website at IRS.gov.

Limitations on Losses, 

Deductions, and Credits

There are potential limitations on partnership 

losses that you can deduct on your return. 

These limitations and the order in which you 

must apply them are as follows: the basis 

limitations, the at-risk limitations, the passive 

activity limitations, and the excess business 

loss limitations. These limitations are 

discussed below.

Other limitations may apply to specific 

deductions (for example, the section 179 

expense deduction). Generally, specific 

limitations apply before the at-risk and 

passive loss limitations.

Basis Limitations

Generally, you may not claim your share of a 

partnership loss (including a capital loss) to 

the extent that it is greater than the adjusted 

basis of your partnership interest at the end 

of the partnership's tax year. Any losses and 

deductions not allowed this year because of 

the basis limit can be carried forward 

indefinitely and deducted in a later year 

subject to the basis limit for that year.

The partnership isn't responsible for 

keeping the information needed to figure the 

basis of your partnership interest. Although 

the partnership does provide an analysis of 

the changes to your capital account in item L 

of Schedule K-1, that information is based on 

the partnership's books and records and 

cannot be used to figure your basis.

You can figure the adjusted basis of your 

partnership interest by adding items that 

increase your basis and then subtracting 

items that decrease your basis.

Use the Worksheet for Adjusting the 

Basis of a Partner’s Interest in the 

Partnership to figure the basis of your 

interest in the partnership.

For more details on the basis limitations, 

and special rules for charitable contributions 

and foreign taxes paid and accrued, see 

Pub. 541, Partnerships.

At-Risk Limitations

Generally, if you have (a) a loss or other 

deduction from any activity carried on as a 

trade or business or for the production of 

income by the partnership, and (b) amounts 

in the activity for which you are not at risk, 

you will have to complete Form 6198, 

At-Risk Limitations, to figure your allowable 

loss for the activity.

The at-risk rules generally limit the 

amount of loss and other deductions that you 

can claim to the amount you could actually 

-2- Partner's Instructions for Schedule K-1 (Form 1065)
lose in the activity. These losses and 

deductions include a loss on the disposition 

of assets and the section 179 expense 

deduction. However, if you acquired your 

partnership interest before 1987, the at-risk 

rules do not apply to losses from an activity 

of holding real property placed in service 

before 1987 by the partnership. The activity 

of holding mineral property doesn't qualify for 

this exception. The partnership should 

identify on a statement attached to 

Schedule K-1 any losses that are not subject 

to the at-risk limitations.

Generally, you are not at risk for amounts 

such as the following.

• Nonrecourse loans used to finance the 

activity, to acquire property used in the 

activity, or to acquire your interest in the 

activity, that are not secured by your own 

property (other than the property used in the 

activity). See the instructions for item K, later, 

for the exception for qualified nonrecourse 

financing secured by real property.

• Cash, property, or borrowed amounts 

used in the activity (or contributed to the 

activity, or used to acquire your interest in 

the activity) that are protected against loss 

by a guarantee, stop-loss agreement, or 

other similar arrangement (excluding 

casualty insurance and insurance against 

tort liability).

• Amounts borrowed for use in the activity 

from a person who has an interest in the 

activity, other than as a creditor, or who is 

related, under section 465(b)(3), to a person 

(other than you) having such an interest.

You should get a separate statement of 

income, expenses, and other items for each 

activity from the partnership.

Passive Activity Limitations

Section 469 provides rules that limit the 

deduction of certain losses and credits. 

These rules apply to partners who:

• Are individuals, estates, trusts, closely 

held C corporations, or personal service 

corporations; and

• Have a passive activity loss or credit for 

the tax year.

Generally, passive activities include the 

following.

1. Trade or business activities in which 

you didn't materially participate.

2. Activities that meet the definition of 

rental activities under Temporary 

Regulations section 1.469-1T(e)(3) and 

Regulations section 1.469-1(e)(3).

Passive activities do not include the 

following.

1. Trade or business activities in which 

you materially participated.

2. Rental real estate activities in which 

you materially participated if you were a real 

estate professional for the tax year. You 

were a real estate professional only if you 

met both of the following conditions.

a. More than half of the personal 

services you performed in trades or 

businesses were performed in real property 

trades or businesses in which you materially 

participated.

b. You performed more than 750 hours 

of services in real property trades or 

businesses in which you materially 

participated.

For a closely held C corporation 

(defined in section 465(a)(1)(B)), the 

above conditions are treated as met 

if more than 50% of the corporation's gross 

receipts were from real property trades or 

businesses in which the corporation 

materially participated.

For purposes of this rule, each interest in 

rental real estate is a separate activity, 

unless you elect to treat all interests in rental 

real estate as one activity. For details on 

making this election, see the Instructions for 

Schedule E (Form 1040), Supplemental 

Income and Loss.

If you are married filing jointly, either you 

or your spouse must separately meet both 

(a) and (b) of the above conditions, without 

taking into account services performed by 

the other spouse.

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A real property trade or business is any 

real property development, redevelopment, 

construction, reconstruction, acquisition, 

conversion, rental, operation, management, 

leasing, or brokerage trade or business. 

Services you performed as an employee are 

not treated as performed in a real property 

trade or business unless you owned more 

than 5% of the stock (or more than 5% of the 

capital or profits interest) in the employer.

3. Working interests in oil or gas wells if 

you were a general partner.

4. The rental of a dwelling unit any 

partner used for personal purposes during 

the year for more than the greater of 14 days 

or 10% of the number of days that the 

residence was rented at fair rental value.

5. Activities of trading personal property 

for the account of owners of interests in the 

activities.

If you are an individual, an estate, or a 

trust, and you have a passive activity loss or 

credit, use Form 8582, Passive Activity Loss 

Limitations, to figure your allowable passive 

losses and Form 8582-CR, Passive Activity 

Worksheet for Adjusting the Basis of a 

Partner's Interest in the Partnership Keep for Your Records

1. Your adjusted basis at the end of the prior year. Do not enter less than zero. 

Enter -0- if this is your first tax year ........................... 1.

Increases:

2. Money and your adjusted basis in property contributed to the partnership less 

the associated liabilities (but not less than zero) .................... 2.

3. Your increased share of or assumption of partnership liabilities. (Subtract your 

share of liabilities shown in item K of your 2017 Schedule K-1 from your share of 

liabilities shown in item K of your 2018 Schedule K-1 and add the amount of any 

partnership liabilities you assumed during the tax year (but not less than 

zero)) .............................................. 3.

4. Your share of the partnership's income or gain (including tax-exempt income) 

reduced by any amount included in interest income with respect to the credit to 

holders of clean renewable energy bonds ....................... 4.

5. Any gain recognized this year on contributions of property. Do not include gain 

from transfer of liabilities .................................. 5.

6. Your share of the excess of the deductions for depletion (other than oil and gas 

depletion) over the basis of the property subject to depletion ............ 6.

Decreases:

7. Withdrawals and distributions of money and the adjusted basis of property 

distributed to you from the partnership. Do not include the amount of property 

distributions included in the partner's income (taxable income) .......... 7.

Caution: A distribution may be taxable if the amount exceeds your adjusted 

basis of your partnership interest immediately before the distribution.

8. Your decreased share of partnership liabilities and any decrease in your 

individual liabilities because they were assumed by the partnership. (Subtract 

your share of liabilities shown in item K of your 2018 Schedule K-1 from your 

share of liabilities shown in item K of your 2017 Schedule K-1 and add the 

amount of your individual liabilities that the partnership assumed during the tax 

year (but not less than zero)) ............................... 8.

9. Your share of the partnership's nondeductible expenses that are not capital 

expenditures ......................................... 9.

10. Your share of the partnership's losses and deductions (including capital losses). 

However, include your share of the partnership's section 179 expense deduction 

for this year even if you cannot deduct all of it because of limitations ....... 10.

11. The amount of your deduction for depletion of any partnership oil and gas 

property, not to exceed your allocable share of the adjusted basis of that 

property ............................................ 11.

12. Your share of the adjusted basis of charitable property contributions and foreign 

taxes paid or accrued .................................... 12.

13. Your adjusted basis in the partnership at the end of this tax year. (Add lines 1 

through 6 and subtract lines 7 through 13 from the total. If zero or less, 

enter -0-.) ........................................... 13.

Caution: The deduction for your share of the partnership's losses and 

deductions is limited to your adjusted basis in your partnership interest. If you 

entered zero on line 13 and the amount figured for line 13 was less than zero, a 

portion of your share of the partnership losses and deductions may not be 

deductible. (See Basis Limitations, earlier, for more information.) 

Partner's Instructions for Schedule K-1 (Form 1065) -3-
Credit Limitations, to figure your allowable 

passive credits. For a corporation, use Form 

8810, Corporate Passive Activity Loss and 

Credit Limitations. See the instructions for 

these forms for details.

If the partnership had more than one 

activity, it will attach a statement to your 

Schedule K-1 that identifies each activity 

(trade or business activity, rental real estate 

activity, rental activity other than rental real 

estate, and other activity) and specifies the 

income (loss), deductions, and credits from 

each activity.

Material participation. You must 

determine if you materially participated (a) in 

each trade or business activity held through 

the partnership, and (b) if you were a real 

estate professional (defined earlier) in each 

rental real estate activity held through the 

partnership. All determinations of material 

participation are based on your participation 

during the partnership's tax year.

Material participation standards for 

partners who are individuals are listed below. 

Special rules apply to certain retired or 

disabled farmers and to the surviving 

spouses of farmers. See the Instructions for 

Form 8582 for details.

Corporations should refer to the 

Instructions for Form 8810 for the material 

participation standards that apply to them.

Individuals (other than limited 

partners). If you are an individual (either a 

general partner or a limited partner who 

owned a general partnership interest at all 

times during the tax year), you materially 

participated in an activity only if one or more 

of the following apply.

1. You participated in the activity for 

more than 500 hours during the tax year.

2. Your participation in the activity for 

the tax year constituted substantially all the 

participation in the activity of all individuals 

(including individuals who are not owners of 

interests in the activity).

3. You participated in the activity for 

more than 100 hours during the tax year, and 

your participation in the activity for the tax 

year wasn't less than the participation in the 

activity of any other individual (including 

individuals who were not owners of interests 

in the activity) for the tax year.

4. The activity was a significant 

participation activity for the tax year, and you 

participated in all significant participation 

activities (including activities outside the 

partnership) during the year for more than 

500 hours. A significant participation activity 

is any trade or business activity in which you 

participated for more than 100 hours during 

the year and in which you didn't materially 

participate under any of the material 

participation tests (other than this test).

5. You materially participated in the 

activity for any 5 tax years (whether or not 

consecutive) during the 10 tax years that 

immediately precede the tax year.

6. The activity was a personal service 

activity and you materially participated in the 

activity for any 3 tax years (whether or not 

consecutive) preceding the tax year. A 

personal service activity involves the 

performance of personal services in the 

fields of health, law, engineering, 

architecture, accounting, actuarial science, 

performing arts, consulting, or any other 

trade or business in which capital isn't a 

material income-producing factor.

7. Based on all the facts and 

circumstances, you participated in the 

activity on a regular, continuous, and 

substantial basis during the tax year.

Limited partners. If you are a limited 

partner, you do not materially participate in 

an activity unless you meet one of the tests 

in paragraph 1, 5, or 6 above.

Work counted toward material 

participation. Generally, any work that you 

or your spouse does in connection with an 

activity held through a partnership (where 

you own your partnership interest at the time 

the work is done) is counted toward material 

participation. However, work in connection 

with the activity isn't counted toward material 

participation if either of the following applies.

1. The work isn't the type of work that 

owners of the activity would usually do and 

one of the principal purposes of the work that 

you or your spouse does is to avoid the 

passive loss or credit limitations.

2. You do the work in your capacity as 

an investor and you are not directly involved 

in the day-to-day operations of the activity. 

Examples of work done as an investor that 

would not count toward material participation 

include:

a. Studying and reviewing financial 

statements or reports on operations of the 

activity,

b. Preparing or compiling summaries or 

analyses of the finances or operations of the 

activity for your own use, and

c. Monitoring the finances or operations 

of the activity in a non-managerial capacity.

Effect of determination. Income (loss), 

deductions, and credits from an activity are 

nonpassive if you determine that:

• You materially participated in a trade or 

business activity of the partnership, or

• You were a real estate professional 

(defined earlier) in a rental real estate activity 

of the partnership.

If you determine that you didn't materially 

participate in a trade or business activity of 

the partnership or if you have income (loss), 

deductions, or credits from a rental activity of 

the partnership (other than a rental real 

estate activity in which you materially 

participated as a real estate professional), 

the amounts from that activity are passive. 

Report passive income (losses), deductions, 

and credits as follows.

1. If you have an overall gain (the 

excess of income over deductions and 

losses, including any prior year unallowed 

loss) from a passive activity, report the 

income, deductions, and losses from the 

activity as indicated in these instructions.

2. If you have an overall loss (the 

excess of deductions and losses, including 

any prior year unallowed loss, over income) 

or credits from a passive activity, report the 

income, deductions, losses, and credits from 

all passive activities using the Instructions for 

Form 8582 or the Instructions for Form 

8582-CR (or Form 8810), to see if your 

deductions, losses, and credits are limited 

under the passive activity rules.

Publicly traded partnerships (PTP). The 

passive activity limitations are applied 

separately for items (other than the 

low-income housing credit and the 

rehabilitation credit) from each PTP. Thus, a 

net passive loss from a PTP may not be 

deducted from other passive income. 

Instead, a passive loss from a PTP is 

suspended and carried forward to be applied 

against passive income from the same PTP 

in later years. If the partner's entire interest in 

the PTP is completely disposed of, any 

unused losses are allowed in full in the year 

of disposition.

If you have an overall gain from a PTP, 

the net gain is nonpassive income. In 

addition, the nonpassive income is included 

in investment income to figure your 

investment interest expense deduction.

Do not report passive income, gains, or 

losses from a PTP on Form 8582. Instead, 

use the following rules to figure and report on 

the proper form or schedule your income, 

gains, and losses from passive activities that 

you held through each PTP you owned 

during the tax year.

1. Combine any current year income, 

gains and losses, and any prior year 

unallowed losses to see if you have an 

overall gain or loss from the PTP. Include 

only the same types of income and losses 

you would include in your net income or loss 

from a non-PTP passive activity. See Pub. 

925, Passive Activity and At-Risk Rules, for 

more details.

2. If you have an overall gain, the net 

gain portion (total gain minus total losses) is 

nonpassive income. On the form or schedule 

you normally use, report the net gain portion 

as nonpassive income and the remaining 

income and the total losses as passive 

income and loss. To the left of the entry 

space, enter “From PTP.” It is important to 

identify the nonpassive income because the 

nonpassive portion is included in modified 

adjusted gross income for purposes of 

figuring on Form 8582 the “special 

allowance” for active participation in a 

non-PTP rental real estate activity. In 

addition, the nonpassive income is included 

in investment income when figuring your 

investment interest expense deduction on 

Form 4952, Investment Interest Expense 

Deduction.

Example. If you have Schedule E (Form 

1040) income of $8,000, and a Form 4797, 

Sales of Business Property, prior year 

unallowed loss of $3,500 from the passive 

activities of a particular PTP, you have a 

$4,500 overall gain ($8,000 − $3,500). On 

-4- Partner's Instructions for Schedule K-1 (Form 1065)
Schedule E (Form 1040), line 28, report the 

$4,500 net gain as nonpassive income in 

column (k). In column (h), report the 

remaining Schedule E (Form 1040) gain of 

$3,500 ($8,000 − $4,500). On the 

appropriate line of Form 4797, report the 

prior year unallowed loss of $3,500. Be sure 

to enter “From PTP” to the left of each entry 

space.

3. If you have an overall loss (but didn't 

dispose of your entire interest in the PTP to 

an unrelated person in a fully taxable 

transaction during the year), the losses are 

allowed to the extent of the income, and the 

excess loss is carried forward to use in a 

future year when you have income to offset 

it. Report as a passive loss on the schedule 

or form you normally use the portion of the 

loss equal to the income. Report the income 

as passive income on the form or schedule 

you normally use.

Example. You have a Schedule E (Form 

1040) loss of $12,000 (current year losses 

plus prior year unallowed losses) and a Form 

4797 gain of $7,200. Report the $7,200 gain 

on the appropriate line of Form 4797. On 

Schedule E (Form 1040), line 28, report 

$7,200 of the losses as a passive loss in 

column (g). Carry forward to 2019 the 

unallowed loss of $4,800 ($12,000 − 

$7,200).

If you have unallowed losses from more 

than one activity of the PTP or from the same 

activity of the PTP that must be reported on 

different forms, you must allocate the 

unallowed losses on a pro rata basis to figure 

the amount allowed from each activity or on 

each form.

To allocate and keep a record of the 

unallowed losses, use Worksheets 

5, 6, and 7 of Form 8582. List each 

activity of the PTP in Worksheet 5. Enter the 

overall loss from each activity in column (a). 

Complete column (b) of Worksheet 5 

according to its instructions. Multiply the total 

unallowed loss from the PTP by each ratio in 

column (b) and enter the result in column (c) 

of Worksheet 5. Then, complete Worksheet 

6 if all the loss from the same activity is to be 

reported on one form or schedule. Use 

Worksheet 7 instead of Worksheet 6 if you 

have more than one loss to be reported on 

different forms or schedules for the same 

activity. Enter the net loss plus any prior year 

unallowed losses in column (a) of Worksheet 

6 (or Worksheet 7, if applicable). The losses 

in column (c) of Worksheet 6 (column (e) of 

Worksheet 7) are the allowed losses to 

report on the forms or schedules. Report 

both these losses and any income from the 

PTP on the forms and schedules you 

normally use.

4. If you have an overall loss and you 

disposed of your entire interest in the PTP to 

an unrelated person in a fully taxable 

transaction during the year, your losses 

(including prior year unallowed losses) 

allocable to the activity for the year are not 

limited by the passive loss rules. A fully 

taxable transaction is one in which you 

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recognize all your realized gain or loss. 

Report the income and losses on the forms 

and schedules you normally use.

For rules on the disposition of an 

entire interest reported using the 

installment method, see the 

Instructions for Form 8582.

Special allowance for a rental real estate 

activity. If you actively participated in a 

rental real estate activity, you may be able to 

deduct up to $25,000 of the loss from the 

activity from nonpassive income. This 

“special allowance” is an exception to the 

general rule disallowing losses in excess of 

income from passive activities. The special 

allowance isn't available if you were married, 

file a separate return for the year, and didn't 

live apart from your spouse at all times 

during the year.

Only individuals, qualifying estates, and 

qualifying revocable trusts that made a 

section 645 election can actively participate 

in a rental real estate activity. Estates (other 

than qualifying estates), trusts (other than 

qualifying revocable trusts that made a 

section 645 election), and corporations 

cannot actively participate. Limited partners 

cannot actively participate unless future 

regulations provide an exception.

You are not considered to actively 

participate in a rental real estate activity if, at 

any time during the tax year, your interest 

(including your spouse's interest) in the 

activity was less than 10% (by value) of all 

interests in the activity.

Active participation is a less stringent 

requirement than material participation. You 

may be treated as actively participating if you 

participated, for example, in making 

management decisions or arranging for 

others to provide services (such as repairs) 

in a significant and bona fide sense. 

Management decisions that can count as 

active participation include approving new 

tenants, deciding rental terms, approving 

capital or repair expenditures, and other 

similar decisions.

An estate is a qualifying estate if the 

decedent would have satisfied the active 

participation requirement for the activity for 

the tax year the decedent died. A qualifying 

estate is treated as actively participating for 

tax years ending less than 2 years after the 

date of the decedent's death.

Modified adjusted gross income 

limitation. The maximum special 

allowance that single individuals and married 

individuals filing a joint return can qualify for 

is $25,000. The maximum is $12,500 for 

married individuals who file separate returns 

and who lived apart at all times during the 

year. The maximum special allowance for 

which an estate can qualify is $25,000 

reduced by the special allowance for which 

the surviving spouse qualifies.

If your modified adjusted gross income 

(defined below) is $100,000 or less ($50,000 

or less if married filing separately), your loss 

is deductible up to the maximum special 

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allowance referred to in the preceding 

paragraph. If your modified adjusted gross 

income is more than $100,000 (more than 

$50,000 if married filing separately), the 

special allowance is limited to 50% of the 

difference between $150,000 ($75,000 if 

married filing separately) and your modified 

adjusted gross income. When modified 

adjusted gross income is $150,000 or more 

($75,000 or more if married filing separately), 

there is no special allowance.

Modified adjusted gross income is your 

adjusted gross income figured without taking 

into account the following amounts, if 

applicable.

• Any passive activity loss.

• Any rental real estate loss allowed under 

section 469(c)(7) to real estate professionals 

(defined earlier).

• Any overall loss from a PTP.

• Any taxable social security or equivalent 

railroad retirement benefits.

• Any deductible contributions to an IRA or 

certain other qualified retirement plans under 

section 219.

• The domestic production activities 

deduction.

• The student loan interest deduction.

• The tuition and fees deduction.

• The deductible part of self-employment 

taxes.

• The exclusion from income of interest 

from Series EE or I U.S. Savings Bonds used 

to pay higher education expenses.

• The exclusion of amounts received under 

an employer's adoption assistance program.

Commercial revitalization deduction. 

The special $25,000 allowance for the 

commercial revitalization deduction from 

rental real estate activities isn't subject to the 

active participation rules or modified 

adjusted gross income limits discussed 

earlier. See section 469(i)(3)(C) as in effect 

before March 23, 2018, and the instructions 

for box 13, code Q, for more information.

Special rules for certain other activities. 

If you have net income (loss), deductions, or 

credits from any activity to which special 

rules apply, the partnership will identify the 

activity and all amounts relating to it on 

Schedule K-1 or on an attached statement.

If you have net income subject to 

recharacterization under Temporary 

Regulations section 1.469-2T(f) and 

Regulations section 1.469-2(f), report such 

amounts according to the Instructions for 

Form 8582 (or Form 8810).

If you have net income (loss), deductions, 

or credits from any of the following activities, 

treat such amounts as nonpassive and report 

them as indicated in these instructions.

1. Working interests in oil and gas wells 

if you are a general partner.

2. The rental of a dwelling unit any 

partner used for personal purposes during 

the year for more than the greater of 14 days 

or 10% of the number of days that the 

residence was rented at fair rental value.

3. Trading personal property for the 

account of owners of interests in the activity.

Partner's Instructions for Schedule K-1 (Form 1065) -5-
Self-charged interest. The partnership will 

report any “self-charged” interest income or 

expense that resulted from loans between 

you and the partnership (or between the 

partnership and another partnership or S 

corporation if both entities have the same 

owners with the same proportional 

ownership interest in each entity). If there 

was more than one activity, the partnership 

will provide a statement allocating the 

interest income or expense with respect to 

each activity. The self-charged interest rules 

do not apply to your partnership interest if the 

partnership made an election under 

Regulations section 1.469-7(g) to avoid the 

application of these rules. See the 

Instructions for Form 8582 for details.

Excess Business Loss 

Limitations

Losses attributable to your trade or business 

may be limited pursuant to section 461. See 

section 461 and Form 461 and its 

instructions for more information.

Specific Instructions

Part I. Information About 

the Partnership

Item D

If the box in item D is checked, you are a 

partner in a PTP and must follow the rules 

discussed earlier under Publicly traded 

partnerships.

Part II. Information About 

the Partner

Item E

For your protection, this form may show only 

the last four digits of your social security 

number (SSN), individual taxpayer 

identification number (ITIN), or employer 

identification number (EIN). However, the 

partnership has reported your complete 

identification number to the IRS.

Item J

Generally, the amounts reported in item J are 

based on the partnership agreement. If your 

interest commenced after the beginning of 

the partnership's tax year, the partnership 

will have entered, in the Beginning column, 

the percentages that existed for you 

immediately after admission. If your interest 

terminated before the end of the 

partnership's tax year, the partnership will 

have entered, in the Ending column, the 

percentages that existed immediately before 

termination.

The ending percentage share shown on 

the Capital line is the portion of the capital 

you would receive if the partnership was 

liquidated at the end of its tax year by the 

distribution of undivided interests in the 

partnership's assets and liabilities. If your 

capital account is negative or zero, the 

partnership will have entered zero on this 

line.

Item K

Item K should show your share of the 

partnership's nonrecourse liabilities, 

partnership-level qualified nonrecourse 

financing, and other recourse liabilities at the 

beginning and the end of the partnership's 

tax year. If you terminated your interest in the 

partnership during the tax year, item K 

should show the share that existed 

immediately before the total disposition. A 

partner's “recourse liability” is any 

partnership liability for which a partner is 

personally liable.

Use the total of the three amounts for 

figuring the adjusted basis of your 

partnership interest.

Generally, you may use only the amounts 

shown next to “Qualified nonrecourse 

financing” and “Recourse” to figure your 

amount at risk. Do not include any amounts 

that are not at risk if such amounts are 

included in either of these categories.

If your partnership is engaged in two or 

more different types of activities subject to 

the at-risk provisions, or a combination of 

at-risk activities and any other activity, the 

partnership should give you a statement 

showing your share of nonrecourse liabilities, 

partnership-level qualified nonrecourse 

financing, and other recourse liabilities for 

each activity.

Qualified nonrecourse financing secured 

by real property used in an activity of holding 

real property that is subject to the at-risk 

rules is treated as an amount at risk. 

Qualified nonrecourse financing generally 

includes financing for which no one is 

personally liable for repayment that is 

borrowed for use in an activity of holding real 

property and that is loaned or guaranteed by 

a federal, state, or local government or 

borrowed from a “qualified” person.

Qualified persons include any persons 

actively and regularly engaged in the 

business of lending money, such as a bank 

or savings and loan association. Qualified 

persons generally do not include related 

parties (unless the nonrecourse financing is 

commercially reasonable and on 

substantially the same terms as loans 

involving unrelated persons), the seller of the 

property, or a person who receives a fee for 

the partnership's investment in the real 

property.

See Pub. 925 for more information on 

qualified nonrecourse financing.

Both the partnership and you must meet 

the qualified nonrecourse rules on this debt 

before you can include the amount shown 

next to “Qualified nonrecourse financing” in 

your at-risk computation.

See Limitations on Losses, Deductions, 

and Credits, earlier, for more information on 

the at-risk limitations.

Item L

If a partnership reports other than tax basis 

capital accounts (i.e., GAAP, section 704(b), 

book, or other) to its partners in Item L, and 

tax basis capital, if reported on any partner's 

Schedule K-1 at the beginning or end of the 

tax year would be negative, the partnership 

must report on line 20 of Schedule K-1, using 

code AH, such partner's beginning and 

ending shares of tax basis capital. This is in 

addition to the required reporting in Item L.

For Item L, “tax basis capital” means (i) 

the amount of cash plus the tax basis of 

property contributed to a partnership by a 

partner minus the amount of cash plus the 

tax basis of property distributed to a partner 

by the partnership, net of any liabilities 

assumed or taken subject to, in connection 

with such contribution or distribution; plus (ii) 

the partner's cumulative share of partnership 

taxable income and tax-exempt income; 

minus (iii) the partner's cumulative share of 

taxable loss and nondeductible, noncapital 

expenditures.

Item M

If you have contributed property with a 

built-in gain or loss during the tax year, the 

partnership will check the “Yes” box. Also, 

the partnership will attach a statement 

showing the property contributed, the date of 

the contribution, and the amount of any 

built-in gain or loss. A built-in gain or loss is 

the difference between the fair market value 

of the property and your adjusted basis in the 

property at the time it was contributed to the 

partnership. If you contributed more than 10 

properties on a single date during the tax 

year, the statement may instead show the 

number of properties contributed on that 

date, the total amount of built-in gain, and the 

total amount of built-in loss.

The partnership is providing this for your 

information. Contributions of property with a 

built-in gain or loss could affect a partner's 

tax liability (in matters concerning 

precontribution gain or loss, and distributions 

subject to section 737), and may also affect 

how the partnership allocated certain items 

on your Schedule K-1. For information on 

precontribution gain or loss, see the 

instructions for box 20, code W. For 

information on distributions subject to 

section 737, see the instructions for box 19, 

code B.

Part III. Partner's Share of 

Current Year Income, 

Deductions, Credits, and 

Other Items

The amounts shown in boxes 1 through 20 

reflect your share of income, loss, 

deductions, credits, and other items from 

partnership business or rental activities 

without reference to limitations on losses or 

adjustments that may be required of you 

because of:

1. The adjusted basis of your 

partnership interest,

-6- Partner's Instructions for Schedule K-1 (Form 1065)
2. The amount for which you are at risk, 

and

3. The passive activity limitations.

For information on these provisions, see 

Limitations on Losses, Deductions, and 

Credits, earlier.

Other limitations may apply to specific 

deductions (for example, the section 179 

expense deduction). Generally, specific 

limitations apply before the at-risk and 

passive loss limitations.

If you are an individual and the passive 

activity rules do not apply to the amounts 

shown on your Schedule K-1, take the 

amounts shown and enter them on the lines 

on your tax return as indicated in the 

summarized reporting information shown on 

page 2 of the Schedule K-1. If the passive 

activity rules do apply, report the amounts 

shown as indicated in these instructions.

If you are not an individual, report the 

amounts in each box as instructed on your 

tax return.

The line numbers in the summarized 

reporting information on page 2 of 

Schedule K-1 are references to forms in use 

for calendar year 2018. If you file your tax 

return on a calendar year basis, but your 

partnership files a return for a fiscal year, 

report the amounts on your tax return for the 

year in which the partnership's fiscal year 

ends. For example, if the partnership's tax 

year ends in February 2019, report the 

amounts on your 2019 tax return.

If you have losses, deductions, or credits 

from a prior year that were not deductible or 

usable because of certain limitations, such 

as the basis limitations or the at-risk 

limitations, take them into account in 

determining your net income, loss, or credits 

for this year. However, except for passive 

activity losses and credits, do not combine 

the prior year amounts with any amounts 

shown on this Schedule K-1 to get a net 

figure to report on any supporting schedules, 

statements, or forms attached to your return. 

Instead, report the amounts on the attached 

schedule, statement, or form on a 

year-by-year basis.

If the partnership reports a section 743(b) 

adjustment to partnership items, report these 

adjustments as separate items on Form 

1040 in accordance with the reporting 

instructions for the partnership item being 

adjusted. A section 743(b) adjustment 

increases or decreases your share of 

income, deduction, gain, or loss for a 

partnership item. For example, if the 

partnership reports a section 743(b) 

adjustment to depreciation for property used 

in its trade or business, report the adjustment 

on line 28 of Schedule E (Form 1040) in 

accordance with the instructions for box 1 of 

Schedule K-1.

If you have amounts other than 

those shown on Schedule K-1 to 

report on Schedule E (Form 1040), 

enter each item separately on line 28 of 

Schedule E (Form 1040).

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Codes. In box 11 and boxes 13 through 20, 

the partnership will identify each item by 

entering a code in the column to the left of 

the dollar amount entry space. These codes 

are identified on page 2 of Schedule K-1 and 

in these instructions.

Attached statements. The partnership will 

enter an asterisk (*) after the code, if any, in 

the column to the left of the dollar amount 

entry space for each item for which it has 

attached a statement providing additional 

information. For those informational items 

that cannot be reported as a single dollar 

amount, the partnership will enter an asterisk 

in the left column and enter “STMT” in the 

dollar amount entry space to indicate the 

information is provided on an attached 

statement.

Income (Loss)

Box 1. Ordinary Business 

Income (Loss)

The amount reported in box 1 is your share 

of the ordinary income (loss) from trade or 

business activities of the partnership. 

Generally, where you report this amount on 

Form 1040 depends on whether the amount 

is from an activity that is a passive activity to 

you. If you are an individual partner filing a 

2018 Form 1040, find your situation below 

and report your box 1 income (loss) as 

instructed, after applying the basis and 

at-risk limitations on losses. If the partnership 

had more than one trade or business activity, 

it will attach a statement identifying the 

income or loss from each activity.

1. Report box 1 income (loss) from 

partnership trade or business activities in 

which you materially participated on 

Schedule E (Form 1040), line 28, column (i) 

or (k).

2. Report box 1 income (loss) from 

partnership trade or business activities in 

which you didn't materially participate, as 

follows.

a. If income is reported in box 1, report 

the income on Schedule E (Form 1040), 

line 28, column (h). However, if the box in 

item D is checked, report the income 

following the rules for Publicly traded 

partnerships, earlier.

b. If a loss is reported in box 1, follow 

the Instructions for Form 8582 to figure how 

much of the loss can be reported on 

Schedule E (Form 1040), line 28, column (g). 

However, if the box in item D is checked, 

report the loss following the rules for Publicly 

traded partnerships, earlier.

Box 2. Net Rental Real Estate 

Income (Loss)

Generally, the income (loss) reported in 

box 2 is a passive activity amount for all 

partners. However, the income (loss) in 

box 2 isn't from a passive activity if you were 

a real estate professional (defined earlier) 

and you materially participated in the activity. 

If the partnership had more than one rental 

real estate activity, it will attach a statement 

identifying the income or loss from each 

activity.

If you are filing a 2018 Form 1040, use 

the following instructions to determine where 

to report a box 2 amount.

1. If you have a loss from a passive 

activity in box 2 and you meet all the 

following conditions, report the loss on 

Schedule E (Form 1040), line 28, column (g).

a. You actively participated in the 

partnership rental real estate activities. See 

Special allowance for a rental real estate 

activity, earlier.

b. Rental real estate activities with 

active participation were your only passive 

activities.

c. You have no prior year unallowed 

losses from these activities.

d. Your total loss from the rental real 

estate activities wasn't more than $25,000 

(not more than $12,500 if married filing 

separately and you lived apart from your 

spouse all year).

e. If you are a married person filing 

separately, you lived apart from your spouse 

all year.

f. You have no current or prior year 

unallowed credits from a passive activity.

g. Your modified adjusted gross income 

wasn't more than $100,000 (not more than 

$50,000 if married filing separately and you 

lived apart from your spouse all year).

h. Your interest in the rental real estate 

activity wasn't held as a limited partner.

2. If you have a loss from a passive 

activity in box 2 and you do not meet all the 

conditions in (1) above, follow the 

Instructions for Form 8582 to figure how 

much of the loss you can report on 

Schedule E (Form 1040), line 28, column (g). 

However, if the box in item D is checked, 

report the loss following the rules for Publicly 

traded partnerships, earlier.

3. If you were a real estate professional 

and you materially participated in the activity, 

report box 2 income (loss) on Schedule E 

(Form 1040), line 28, column (i) or (k).

4. If you have income from a passive 

activity in box 2, report the income on 

Schedule E (Form 1040), line 28, column (h). 

However, if the box in item D is checked, 

report the income following the rules for 

Publicly traded partnerships, earlier.

Box 3. Other Net Rental Income 

(Loss)

The amount in box 3 is a passive activity 

amount for all partners. If the partnership had 

more than one rental activity, it will attach a 

statement identifying the income or loss from 

each activity. Report the income or loss as 

follows.

1. If box 3 is a loss, follow the 

Instructions for Form 8582 to figure how 

much of the loss can be reported on 

Schedule E (Form 1040), line 28, column (g). 

However, if the box in item D is checked, 

Partner's Instructions for Schedule K-1 (Form 1065) -7-
report the loss following the rules for Publicly 

traded partnerships, earlier.

2. If income is reported in box 3, report 

the income on Schedule E (Form 1040), 

line 28, column (h). However, if the box in 

item D is checked, report the income 

following the rules for Publicly traded 

partnerships, earlier.

Box 4. Guaranteed Payments

Generally, amounts on this line are not 

passive income, and you should report them 

on Schedule E (Form 1040), line 28, column 

(k) (for example, guaranteed payments for 

personal services).

Portfolio Income

Portfolio income or loss (shown in boxes 5 

through 9b and in box 11, code A) isn't 

subject to the passive activity limitations. 

Portfolio income includes income (not 

derived in the ordinary course of a trade or 

business) from interest, ordinary dividends, 

annuities or royalties, and gain or loss on the 

sale of property that produces such income 

or is held for investment.

Box 5. Interest Income

Report interest income on line 2b of Form 

1040. If the amount of interest income 

included in box 5 includes interest from the 

credit for holders of clean renewable energy 

bonds, the partnership will attach a 

statement to Schedule K-1 showing your 

share of interest income from these credits. 

Because the basis of your interest in the 

partnership has been increased by your 

share of the interest income from these 

credits, you must reduce your basis by the 

same amount. See line 4 of the Worksheet 

for Adjusting the Basis of a Partner's Interest 

in the Partnership.

Box 6a. Ordinary Dividends

Report ordinary dividends on line 3b of Form 

1040.

Box 6b. Qualified Dividends

Report any qualified dividends on line 3a of 

Form 1040.

Qualified dividends are excluded 

from investment income, but you 

may elect to include part or all of 

these amounts in investment income. See 

the instructions for line 4g of Form 4952, 

Investment Interest Expense Deduction, for 

important information on making this 

election.

If you have any foreign source 

qualified dividends, see the 

instructions for box 16, later.

Attach a statement to the K-1 identifying 

the dividends included in box 6a or 6b that 

are:

• Eligible for the deduction for dividends 

received under sections 243 (a), (b) or (c),

• Eligible for the deduction for dividends 

received under section 245,

• Eligible for the deduction for dividends 

received under section 245A, and

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CAUTION

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• Hybrid dividends as defined in section 

245A(e)(4).

Box 6c. Dividend Equivalents

Dividend equivalents are not reported on 

Form 1040. This information is provided for 

persons that are not U.S. persons, who 

generally are required to treat dividend 

equivalents as U.S. source dividends, and 

domestic partnerships with partners who 

may need this information. The ordinary 

dividends amount in line 6a does not include 

the amount of dividend equivalents.

Box 7. Royalties

Report royalties on Schedule E (Form 1040), 

line 4.

Box 8. Net Short-Term Capital 

Gain (Loss)

Report the net short-term capital gain (loss) 

on Schedule D (Form 1040), line 5.

Box 9a. Net Long-Term Capital 

Gain (Loss)

Report the net long-term capital gain (loss) 

on Schedule D (Form 1040), line 12.

If you have any foreign source net 

long-term capital gain (loss), see the 

instructions for box 16, later.

Box 9b. Collectibles (28%) Gain 

(Loss)

Report collectibles gain or loss on line 4 of 

the 28% Rate Gain Worksheet—Line 18 in 

the Instructions for Schedule D (Form 1040).

If you have any foreign source 

collectibles (28%) gain (loss), see 

the instructions for box 16, later.

Box 9c. Unrecaptured Section 

1250 Gain

There are three types of unrecaptured 

section 1250 gain. Report your share of this 

unrecaptured gain on the Unrecaptured 

Section 1250 Gain Worksheet—Line 19 in 

the Instructions for Schedule D (Form 1040) 

as follows.

• Report unrecaptured section 1250 gain 

from the sale or exchange of the 

partnership's business assets on line 5.

• Report unrecaptured section 1250 gain 

from the sale or exchange of an interest in a 

partnership on line 10.

• Report unrecaptured section 1250 gain 

from an estate, trust, regulated investment 

company (RIC), or real estate investment 

trust (REIT) on line 11.

If the partnership reports only 

unrecaptured section 1250 gain from the 

sale or exchange of its business assets, it 

will enter a dollar amount in box 9c. If it 

reports the other two types of unrecaptured 

gain, it will provide an attached statement 

that shows the amount for each type of 

unrecaptured section 1250 gain.

If you have any foreign source 

unrecaptured section 1250 gain, see 

the instructions for box 16, later.

CAUTION

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CAUTION

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CAUTION

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Box 10. Net Section 1231 Gain 

(Loss)

The amount in box 10 is generally passive if 

it is from a:

• Rental activity, or

• Trade or business activity in which you 

didn't materially participate.

However, an amount from a rental real 

estate activity isn't from a passive activity if 

you were a real estate professional (defined 

earlier) and you materially participated in the 

activity.

If the amount is either (a) a loss that isn't 

from a passive activity or (b) a gain, report it 

on line 2, column (g), of Form 4797, Sales of 

Business Property. Do not complete columns 

(b) through (f) on line 2 of Form 4797. 

Instead, enter “From Schedule K-1 (Form 

1065)” across these columns.

If the amount is a loss from a passive 

activity, see Passive Loss Limitations in the 

Instructions for Form 4797. Report the loss 

following the Instructions for Form 8582 to 

figure how much of the loss is allowed on 

Form 4797. However, if the box in item D is 

checked, report the loss following the rules 

for Publicly traded partnerships, earlier. If the 

partnership had net section 1231 gain (loss) 

from more than one activity, it will attach a 

statement that will identify the section 1231 

gain (loss) from each activity.

If you have any foreign source net 

section 1231 gain (loss), see the 

instructions for box 16, later.

Box 11. Other Income (Loss)

Code A. Other portfolio income (loss). 

The partnership will report portfolio income 

other than interest, ordinary dividend, 

royalty, and capital gain (loss) income, and 

attach a statement to tell you what kind of 

portfolio income is reported.

If the partnership held a residual interest 

in a real estate mortgage investment conduit 

(REMIC), it will report on the statement your 

share of REMIC taxable income (net loss) 

that you report on Schedule E (Form 1040), 

line 38, column (d). The statement will also 

report your share of any “excess inclusion” 

that you report on Schedule E (Form 1040), 

line 38, column (c), and your share of section 

212 expenses that you report on Schedule E 

(Form 1040), line 38, column (e).

Code B. Involuntary conversions. This is 

your net gain (loss) from involuntary 

conversions due to casualty or theft. The 

partnership will give you a statement that 

shows the amounts to be reported on Form 

4684, Casualties and Thefts, line 34, 

columns (b)(i), (b)(ii), and (c).

If there was a gain (loss) from a casualty 

or theft to property not used in a trade or 

business or for income-producing purposes, 

the partnership will provide you with the 

information you need to complete Form 

4684.

Code C. Section 1256 contracts and 

straddles. The partnership will report any 

CAUTION

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-8- Partner's Instructions for Schedule K-1 (Form 1065)
net gain or loss from section 1256 contracts. 

Report this amount on Form 6781, Gains and 

Losses From Section 1256 Contracts and 

Straddles.

Code D. Mining exploration costs recapture. The partnership will give you a 

statement that shows the information needed 

to recapture certain mining exploration costs 

(section 617). See Pub. 535 for details.

Code E. Cancellation of debt. Generally, 

this cancellation of debt (COD) amount is 

included in your gross income (Schedule 1 

(Form 1040), line 21). Under section 108(b)

(5), you may elect to apply any portion of the 

COD amount excluded from gross income to 

the reduction of the basis of depreciable 

property. See Form 982 for more details.

Code F. Section 951A income. The 

partnership will provide information you need 

to figure section 951A income. Report your 

section 951A income on Schedule 1 (Form 

1040), line 21, or the comparable line of your 

income tax return. For details, see the 

Instructions for Form 8992, U.S. Shareholder 

Calculation of Global Intangible Low– Taxed 

Income (GILTI).

If you are eligible for and wish to claim a 

deduction under section 250 from your GILTI 

inclusion, see Form 8993, Section 250 

Deduction for Foreign Derived Intangible 

Income (FDII) and Global Intangible 

Low-Taxed Income (GILTI), and its 

instructions.

Code G. Section 965(a) inclusion. The 

partnership will provide your share of the 

section 965(a) inclusions. See the 

Instructions for Form 965 and the 

Instructions for Form 965-A for more details.

Code H. Subpart F income other than 

sections 951A and 965 inclusions. The 

partnership will provide your share of subpart 

F inclusions other than sections 951A and 

965 inclusions.

Attach a statement to the Schedule K-1 

identifying any subpart F inclusion 

attributable to:

• The sale or exchange by a controlled 

foreign corporation (CFC) of stock in another 

foreign corporation described in section 

964(e)(4), or

• Hybrid dividends of tiered corporations 

under section 245A(e)(2).

Code I. Other income (loss). Amounts 

with code I are other items of income, gain, 

or loss not included in boxes 1 through 10 or 

reported in box 11 using codes A through H. 

The partnership should give you a 

description and the amount of your share for 

each of these items.

Report loss items that are passive activity 

amounts to you following the Instructions for 

Form 8582. However, if the box in item D is 

checked, report the loss following the rules 

for Publicly traded partnerships, earlier.

Code I items may include the following.

• Gain or loss attributable to the sale or 

exchange of qualified preferred stock of the 

Federal National Mortgage Association 

(Fannie Mae) and the Federal Home Loan 

Mortgage Corporation (Freddie Mac). The 

partnership will report on an attached 

statement the amount of gain or loss 

attributable to the sale or exchange of the 

qualified preferred stock, the date the stock 

was acquired by the partnership, and the 

date the stock was sold or exchanged by the 

partnership. If the partner is not a financial 

institution, report the gain or loss on line 5 or 

line 12 of Schedule D (Form 1040) in 

accordance with the Instructions for 

Schedule D (Form 1040) and the Instructions 

for Form 8949. If a partner is a financial 

institution referred to in section 582(c)(2) or a 

depositary institution holding company (as 

defined in section 3(w)(1) of the Federal 

Deposit Insurance Act), report the gain or 

loss in accordance with the Instructions for 

Form 4797, and Rev. Proc. 2008-64, 

2008-47 I.R.B. 1195.

• Partnership gains from the disposition of 

farm recapture property (see the instructions 

for line 27 of Form 4797) and other items to 

which section 1252 applies.

• Income from recoveries of tax benefit 

items. A tax benefit item is an amount you 

deducted in a prior tax year that reduced 

your income tax. Report this amount on 

Schedule 1 (Form 1040), line 21 to the extent 

it reduced your tax in the prior tax year.

• Gambling gains and losses.

1. If the partnership wasn't engaged in 

the trade or business of gambling, (a) report 

gambling winnings on Schedule 1 (Form 

1040), line 21, and (b) deduct gambling 

losses to the extent of winnings on 

Schedule A (Form 1040), line 16.

2. If the partnership was engaged in the 

trade or business of gambling, (a) report 

gambling winnings on line 28 of Schedule E 

(Form 1040), and (b) deduct gambling 

losses (to the extent of winnings) on line 28 

of Schedule E (Form 1040), column (i).

• Gain (loss) from the disposition of an 

interest in oil, gas, geothermal, or other 

mineral properties. The partnership will 

attach a statement that provides a 

description of the property, your share of the 

amount realized from the disposition, your 

share of the partnership's adjusted basis in 

the property (for other than oil or gas 

properties), and your share of the total 

intangible drilling costs, development costs, 

and mining exploration costs (section 59(e) 

expenditures) passed through for the 

property. You must figure your gain or loss 

from the disposition by increasing your share 

of the adjusted basis by the intangible drilling 

costs, development costs, or mine 

exploration costs for the property that you 

capitalized (that is, costs that you didn't elect 

to deduct under section 59(e)). Report a loss 

in Part I of Form 4797. Report a gain in Part 

III of Form 4797 in accordance with the 

instructions for line 28. See Regulations 

section 1.1254-5 for details.

• Any income, gain, or loss to the 

partnership under section 751(b) (certain 

distributions treated as sales or exchanges). 

Report this amount on Form 4797, line 10.

• Specially allocated ordinary gain (loss). 

Report this amount on Form 4797, line 10.

• Net short-term capital gain (loss) and net 

long-term capital gain (loss) from 

Schedule D (Form 1065) that isn't portfolio 

income. An example is gain or loss from the 

disposition of nondepreciable personal 

property used in a trade or business activity 

of the partnership. Report total net short-term 

gain (loss) on Schedule D (Form 1040), 

line 5. Report the total net long-term gain 

(loss) on Schedule D (Form 1040), line 12.

• Current year section 108(i) cancellation of 

debt (COD) income. The partnership will 

provide your share of the deferred COD 

income amount that you must include in 

income in the current tax year under section 

108(i)(1) or section 108(i)(5)(D)(i) or (ii).

• Gain from the sale or exchange of 

qualified small business (QSB) stock (as 

defined in the Instructions for Schedule D 

(Form 1065)) that is eligible for a section 

1202 exclusion. The partnership should also 

give you (a) the name of the corporation that 

issued the QSB stock, (b) your share of the 

partnership's adjusted basis and sales price 

of the QSB stock, and (c) the dates the QSB 

stock was bought and sold. Corporate 

partners are not eligible for the section 1202 

exclusion. The following additional limitations 

apply at the partner level.

1. You must have held an interest in the 

partnership when the partnership acquired 

the QSB stock and at all times thereafter until 

the partnership disposed of the QSB stock.

2. Your share of the eligible section 

1202 gain cannot exceed the amount that 

would have been allocated to you based on 

your interest in the partnership at the time the 

QSB stock was acquired.

See the Instructions for Schedule D 

(Form 1040) and the Instructions for Form 

8949 for details on how to report the gain 

and the amount of the allowable exclusion.

• Gain eligible for section 1045 rollover.

Replacement stock purchased by the 

partnership. The partnership should give 

you (a) the name of the corporation that 

issued the qualified small business (QSB) 

stock, (b) your share of the partnership's 

adjusted basis and sales price of the QSB 

stock, (c) the dates the QSB stock was 

bought and sold, (d) your share of gain from 

the sale of the QSB stock, and (e) your 

share of the gain that was deferred by the 

partnership under section 1045. Corporate 

partners are not eligible for the section 1045 

rollover. To qualify for the section 1045 

rollover:

1. You must have held an interest in the 

partnership during the entire period in which 

the partnership held the QSB stock (more 

than 6 months prior to the sale), and

2. Your share of the gain eligible for the 

section 1045 rollover cannot exceed the 

amount that would have been allocated to 

you based on your interest in the partnership 

at the time the QSB stock was acquired.

See the Instructions for Schedule D 

(Form 1040) and the Instructions for Form 

8949 for details on how to report the gain 

Partner's Instructions for Schedule K-1 (Form 1065) -9-
and the amount of the allowable postponed 

gain.

Opting out of partnership election. You 

can opt out of the partnership's section 1045 

election and either (1) recognize the gain or 

(2) elect to purchase different replacement 

QSB stock, either directly or through 

ownership of a different partnership that 

acquired replacement QSB stock. You 

satisfy the requirement to purchase 

replacement QSB stock if you own an 

interest in a partnership that purchases QSB 

stock during the 60-day period. You also 

must notify the partnership, in writing, if you 

opt out of the partnership's section 1045 

election. If you recognize gain, you must 

notify the partnership, in writing, of the 

amount of the gain that you are recognizing.

Replacement stock not purchased by the 

partnership. The partnership should give 

you (a) the name of the corporation that 

issued the QSB stock, (b) your share of the 

partnership's adjusted basis and sales price 

of the QSB stock, (c) the dates the QSB 

stock was bought and sold, and (d) your 

share of gain from the sale of the QSB stock. 

Corporate partners are not eligible for the 

section 1045 rollover. To qualify for the 

section 1045 rollover:

1. You must have held an interest in the 

partnership during the entire period in which 

the partnership held the QSB stock,

2. Your share of the gain eligible for the 

section 1045 rollover cannot exceed the 

amount that would have been allocated to 

you based on your interest in the partnership 

at the time the QSB stock was acquired, and

3. You must purchase other QSB stock 

(as defined in the Instructions for Schedule D 

(Form 1040)) during the 60-day period that 

began on the date the QSB stock was sold 

by the partnership.

See the Instructions for Schedule D 

(Form 1040) and the Instructions for Form 

8949 for details on how to report the gain 

and the amount of the allowable postponed 

gain.

Making the section 1045 election. 

You make a section 1045 election on a 

timely filed return for the tax year during 

which the partnership's tax year ends. See 

the Instructions for Form 8949 and the 

Instructions for Schedule D (Form 1040) for 

more information. Attach to your Schedule D 

(Form 1040) a statement that includes the 

following information for each amount of gain 

that you do not recognize under section 

1045.

• The name of the corporation that issued 

the QSB stock.

• The name and EIN of the selling 

partnership.

• The dates the QSB stock was purchased 

and sold.

• The amount of gain that isn't recognized 

under section 1045.

• If a partner purchases QSB stock, the 

name of the corporation that issued the 

replacement QSB stock, the date the stock 

was purchased, and the cost of the stock.

• If a partner treats the partner's interest in 

QSB stock that is purchased by a purchasing 

partnership as the partner's replacement 

QSB stock, the name and EIN of the 

purchasing partnership, the name of the 

corporation that issued the replacement QSB 

stock, the partner's share of the cost of the 

QSB stock that was purchased by the 

partnership, the computation of the partner's 

adjustment to basis with respect to that QSB 

stock, and the date the stock was purchased 

by the partnership.

Distribution of replacement QSB stock to 

a partner that reduces another partner's 

interest in replacement QSB stock. You 

must recognize gain upon a distribution of 

replacement QSB stock to another partner 

that reduces your share of the replacement 

QSB stock held by a partnership. The 

amount of gain that you must recognize is 

based on the amount of gain that you would 

recognize upon a sale of the distributed 

replacement QSB stock for its fair market 

value on the date of the distribution, but not 

to exceed the amount you previously 

deferred under section 1045 with respect to 

the distributed replacement QSB stock. If the 

partnership distributed your share of 

replacement QSB stock to another partner, 

the partnership should give you (a) the name 

of the corporation that issued the 

replacement QSB stock, (b) the date the 

replacement QSB stock was distributed to 

another partner or partners, and (c) your 

share of the partnership's adjusted basis and 

fair market value of the replacement QSB 

stock on such date.

For more information, see Regulations 

section 1.1045-1.

Deductions

Box 12. Section 179 Deduction

Use this amount, along with the total cost of 

section 179 property placed in service during 

the year from other sources, to complete Part 

I of Form 4562, Depreciation and 

Amortization. The partnership will report on 

an attached statement your allowable share 

of the cost of any qualified enterprise zone or 

qualified real property it placed in service 

during the tax year. Report the amount from 

line 12 of Form 4562 allocable to a passive 

activity using the Instructions for Form 8582. 

If the amount isn't a passive activity 

deduction, report it on Schedule E (Form 

1040), line 28, column (j). However, if the 

box in item D is checked, report this amount 

following the rules for Publicly traded 

partnerships, earlier.

Box 13. Other Deductions

Contributions. Codes A through G. The 

partnership will give you a statement that 

shows charitable contributions subject to the 

100%, 60%, 50%, 30%, and 20% adjusted 

gross income (AGI) limitations. For more 

details, see Pub. 526, Charitable 

Contributions, and the Instructions for 

Schedule A (Form 1040). If your 

contributions are subject to more than one of 

the AGI limitations, see Worksheet 2. 

Applying the Deduction Limits in Pub. 526.

Charitable contribution deductions are 

not taken into account in figuring your 

passive activity loss for the year. Do not 

include them on Form 8582.

Code A. Cash contributions (60%). 

Report this amount, subject to the 60% AGI 

limitation, on line 11 of Schedule A (Form 

1040).

Code B. Cash contributions (30%). 

Report this amount, subject to the 30% AGI 

limitation, on line 11 of Schedule A (Form 

1040).

Code C. Noncash contributions (50%). If 

property other than cash is contributed, and 

if the claimed deduction for one item or 

group of similar items of property exceeds 

$5,000, the partnership must give you a copy 

of Form 8283, Noncash Charitable 

Contributions, to attach to your tax return. Do 

not deduct the amount shown on Form 8283. 

It is the partnership's contribution. Instead, 

deduct the amount identified by code C, 

box 13, subject to the 50% AGI limitation, on 

line 12 of Schedule A (Form 1040).

If the partnership provides you with 

information that the contribution was 

property other than cash and doesn't give 

you a Form 8283, see the Instructions for 

Form 8283 for filing requirements. Do not file 

Form 8283 unless the total claimed 

deduction for all contributed items of 

property exceeds $500.

Food inventory contributions. The 

partnership will report on an attached 

statement your share of qualified food 

inventory contributions. The food inventory 

contribution isn't included in the amount 

reported in box 13 using code C. The 

partnership will also report your share of the 

partnership's net income from the business 

activities that made the food inventory 

contribution(s). Your deduction for food 

inventory contributions cannot exceed 15% 

of your aggregate net income for the tax year 

from the business activities from which the 

food inventory contribution was made 

(including your share of net income from 

partnership or S corporation businesses that 

made food inventory contributions). Amounts 

that exceed the 15% limitation may be 

carried over for up to 5 years. Report the 

deduction, subject to the 50% AGI limitation, 

on line 12 of Schedule A (Form 1040).

Code D. Noncash contributions (30%). 

Report this amount, subject to the 30% AGI 

limitation, on line 12 of Schedule A (Form 

1040).

Code E. Capital gain property to a 50% 

organization (30%). Report this amount, 

subject to the 30% AGI limitation, on line 12 

of Schedule A (Form 1040). See Special 

30% Limit for Capital Gain Property in Pub. 

526.

Code F. Capital gain property (20%). 

Report this amount, subject to the 20% AGI 

-10- Partner's Instructions for Schedule K-1 (Form 1065)
limitation, on line 12 of Schedule A (Form 

1040).

Code G. Contributions (100%). The 

partnership will report your distributive share 

of the following contributions (both cash and 

noncash) that may be subject to the 100% 

AGI limitation.

Qualified conservation contributions 

of property used in agriculture or 

livestock production. The partnership will 

report your share of qualified conservation 

contributions of property used in agriculture 

or livestock production. This contribution isn't 

included in the amount reported in box 13 

using code C. If you are a farmer or rancher, 

you qualify for a 100% AGI limitation for this 

contribution. Otherwise, your deduction for 

this contribution is subject to a 50% AGI 

limitation. Report this deduction on line 12 of 

Schedule A (Form 1040). See Pub. 526 for 

more information on qualified conservation 

contributions.

Cash contributions for relief efforts in 

certain disaster areas. The partnership 

will report your share of qualified cash 

contributions that were donated for relief 

efforts in certain disaster areas. You can 

elect to deduct 100% of these contributions 

on line 11 of Schedule A (Form 1040). If you 

do not make this election, add this amount to 

the cash contributions reported in box 13 

using code A and enter the total amount, 

subject to a 50% AGI limitation, on line 11 of 

Schedule A (Form 1040).

Code H. Investment interest expense. 

Include this amount on Form 4952, line 1. If 

the partnership has investment income or 

other investment expense, it will report your 

share of these items in box 20 using codes A 

and B. Include investment income and 

expenses from other sources to figure how 

much of your total investment interest is 

deductible. You will also need this 

information to figure your investment interest 

expense deduction.

If the partnership paid or accrued interest 

on debts properly allocable to investment 

property, the amount of interest you are 

allowed to deduct may be limited.

For more information on the special 

provisions that apply to investment interest 

expense, see Form 4952 and Pub. 550, 

Investment Income and Expenses.

Code I. Deductions—royalty income. 

Include deductions allocable to royalties on 

Schedule E (Form 1040), line 19. For this 

type of expense, enter “From Schedule K-1 

(Form 1065).”

These deductions are not taken into 

account in figuring your passive activity loss 

for the year. Do not enter them on Form 

8582.

Code J. Section 59(e)(2) expenditures. 

On an attached statement, the partnership 

will show the type and the amount of 

qualified expenditures for which you may 

make a section 59(e) election. The 

statement will also identify the property for 

which the expenditures were paid or 

incurred. If there is more than one type of 

expenditure, the amount of each type will 

also be listed.

If you deduct these expenditures in full in 

the current year, they are treated as 

adjustments or tax preference items for 

purposes of alternative minimum tax. 

However, you may elect to amortize these 

expenditures over the number of years in the 

applicable period rather than deduct the full 

amount in the current year. If you make this 

election, these items are not treated as 

adjustments or tax preference items.

Under the election, you can deduct 

circulation expenditures ratably over a 3-year 

period. Research and experimental 

expenditures and mining exploration and 

development costs can be amortized over a 

10-year period. Intangible drilling and 

development costs can be amortized over a 

60-month period. The amortization period 

begins with the month in which such costs 

were paid or incurred.

Make the election on Form 4562. If you 

make the election, report the current year 

amortization of section 59(e) expenditures 

from Part VI of Form 4562 on line 28 of 

Schedule E (Form 1040). If you do not make 

the election, report the section 59(e)(2) 

expenditures on line 28 of Schedule E (Form 

1040) and figure the resulting adjustment or 

tax preference item (see Form 6251, 

Alternative Minimum Tax—Individuals). 

Whether you deduct the expenditures or 

elect to amortize them, report the amount on 

a separate line in column (i) of line 28 if you 

materially participated in the partnership 

activity. If you didn't materially participate, 

follow the Instructions for Form 8582 to figure 

how much of the deduction can be reported 

in column (g).

Code K. Excess business interest expense. If the partnership reports excess 

business interest expense to the partner, the 

partner is required to file Form 8990. See the 

Instructions for Form 8990 for additional 

information.

Code L. Deductions—portfolio (other). 

Generally, you should report these amounts 

on Schedule A (Form 1040), line 16. See the 

instructions for Schedule A, line 16, for 

details. These deductions are not taken into 

account in figuring your passive activity loss 

for the year. Do not enter them on Form 

8582.

Code M. Amounts paid for medical insurance. Any amounts paid during the tax year 

for insurance that constitutes medical care 

for you, your spouse, your dependents, and 

your children under age 27 who are not 

dependents. On Schedule 1 (Form 1040), 

line 29, you may be allowed to deduct such 

amounts, even if you do not itemize 

deductions. If you do itemize deductions, 

enter on line 1 of Schedule A (Form 1040) 

any amounts not deducted on Schedule 1 

(Form 1040), line 29.

Code N. Educational assistance benefits. 

Deduct your educational assistance benefits 

on a separate line of Schedule E (Form 

1040), line 28, up to the $5,250 limitation. If 

your benefits exceed $5,250, you may be 

able to use the excess amount on Form 8863 

to figure the education credits.

Code O. Dependent care benefits. The 

partnership will report the dependent care 

benefits you received. You must use Form 

2441, Part III, to figure the amount, if any, of 

the benefits you may exclude from your 

income.

Code P. Preproductive period expenses. 

You may be able to deduct these expenses 

currently or you may need to capitalize them 

under section 263A. See Pub. 225, Farmer's 

Tax Guide, and Regulations section 

1.263A-4 for details.

Code Q. Commercial revitalization deduction from rental real estate activities. 

Follow the Instructions for Form 8582 to 

figure how much of the deduction can be 

reported on Schedule E (Form 1040), 

line 28, column (g).

Code R. Pensions and IRAs. Payments 

made on your behalf to an IRA, qualified 

plan, simplified employee pension (SEP), or 

a SIMPLE IRA plan. See the Schedule 1 

(Form 1040) instructions for line 32 to figure 

your IRA deduction. Enter payments made to 

a qualified plan, SEP, or SIMPLE IRA plan 

on Schedule 1 (Form 1040), line 28. If the 

payments to a qualified plan were to a 

defined benefit plan, the partnership should 

give you a statement showing the amount of 

the benefit accrued for the current tax year.

Code S. Reforestation expense deduction. The partnership will provide a 

statement that describes the qualified timber 

property for these reforestation expenses. 

The expense deduction is limited to $10,000 

($5,000 if married filing separately) for each 

qualified timber property, including your 

share of the partnership's expense and any 

reforestation expenses you separately paid 

or incurred during the tax year.

If you didn't materially participate in the 

activity, use Form 8582 to figure the amount 

to report on Schedule E (Form 1040), line 28, 

column (g). If you materially participated in 

the reforestation activity, report the 

deduction on line 28, column (i), of 

Schedule E (Form 1040).

Codes T through V. These codes are 

reserved for future use.

Code W. Other deductions. Amounts with 

this code may include the following.

• Itemized deductions that Form 1040 filers 

report on Schedule A (Form 1040).

• Soil and water conservation expenditures 

and endangered species recovery 

expenditures. See section 175 for limitations 

on the amount you are allowed to deduct.

• Expenditures for the removal of 

architectural and transportation barriers to 

the elderly and disabled that the partnership 

elected to treat as a current expense. The 

deductions are limited by section 190(c) to 

$15,000 per year from all sources.

• Interest expense allocated to 

debt-financed distributions. The manner in 

Partner's Instructions for Schedule K-1 (Form 1065) -11-
which you report such interest expense 

depends on your use of the distributed debt 

proceeds. If the proceeds were used in a 

trade or business activity, report the interest 

on line 28 of Schedule E (Form 1040). In 

column (a), enter the name of the partnership 

and “interest expense.” If you materially 

participated in the trade or business activity, 

enter the interest expense in column (i). If 

you didn't materially participate in the 

activity, follow the Instructions for Form 8582 

to figure the interest expense you can report 

in column (g). See the definition of material 

participation, earlier. If the proceeds were 

used in an investment activity, report the 

interest on Form 4952. If the proceeds are 

used for personal purposes, the interest is 

generally not deductible.

• Interest paid or accrued on debt properly 

allocable to your share of a working interest 

in any oil or gas property (if your liability isn't 

limited). If you didn't materially participate in 

the oil or gas activity, this interest is 

investment interest reportable as described 

earlier under Code H. Investment interest 

expense; otherwise, it is trade or business 

interest. If you didn't materially participate in 

the oil or gas activity, this interest is 

investment interest expense and should be 

reported on Form 4952. If you materially 

participated in the activity, report the interest 

on line 28 of Schedule E (Form 1040). On a 

separate line, enter “interest expense” and 

the name of the partnership in column (a) 

and the amount in column (i).

• Contributions to a capital construction 

fund (CCF). The deduction for a CCF 

investment isn't taken on Schedule E (Form 

1040). Instead, you subtract the deduction 

from the amount that would normally be 

entered as taxable income on line 10 of Form 

1040. In the margin to the left of line 10, enter 

"CCF" and the amount of the deduction.

• Penalty on early withdrawal of savings. 

Report this amount on Schedule 1 (Form 

1040), line 30.

• Film, television, and live theatrical 

production expenses. The partnership will 

provide a statement that describes the film, 

television, or live theatrical production 

generating these expenses. Generally, if the 

aggregate cost of the production exceeds 

$15 million, you are not entitled to the 

deduction. The limitation is $20 million for 

productions in certain areas (see section 181 

for details). If you didn't materially participate 

in the activity, use Form 8582 to determine 

the amount that can be reported on 

Schedule E (Form 1040), line 28, column (g). 

If you materially participated in the 

production activity, report the deduction on 

Schedule E (Form 1040), line 28, column (i).

• Current year section 108(i) original issue 

discount (OID) deduction. The partnership 

will provide your share of the partnership's 

OID deduction deferred under section 108(i)

(2)(A)(i) that is allowable as a deduction in 

the current tax year under section 108(i)(2)

(A)(ii) or section 108(i)(5)(D)(i) or (ii).

• Domestic productions activities deduction 

(DPAD). The DPAD has been repealed for 

tax years beginning after 2017. However, if 

your tax year begins after 2017, the DPAD 

can be taken in limited circumstances. See 

Form 8903 and its instructions for details. If 

you qualify for the DPAD, the partnership will 

provide you with a statement with information 

that you can use to figure the DPAD. Report 

the qualified production activities income 

(QPAI) reported to you by the partnership in 

the applicable column of Form 8903, line 7. 

Report the portion of Form W-2 wages 

reported to you by the partnership on line 17 

of Form 8903.

• Deductions—portfolio (formerly 

deductible by individuals under section 67 

subject to 2% AGI floor). For taxpayers other 

than individuals, deduct amounts that are 

clearly and directly allocable to portfolio 

income (other than investment interest 

expense and section 212 expenses from a 

REMIC).

The partnership will give you a 

description and the amount of your share for 

each of these items.

Code X. Section 965(c) deduction. The 

partnership will provide information on your 

share of the section 965(c) deduction. See 

Form 965, Form 965-A, and the related 

instructions for more detail.

Box 14. Self-Employment 

Earnings (Loss)

If you and your spouse are both partners, 

each of you must complete and file your own 

Schedule SE (Form 1040), Self-Employment 

Tax, to report your partnership net earnings 

(loss) from self-employment.

Code A. Net earnings (loss) from 

self-employment. If you are a general 

partner, reduce this amount before entering it 

on Schedule SE (Form 1040) by any section 

179 expense deduction claimed, 

unreimbursed partnership expenses 

claimed, and depletion claimed on oil and 

gas properties. Do not reduce net earnings 

from self-employment by any separately 

stated deduction for health insurance 

expenses.

If the amount on this line is a loss, enter 

only the deductible amount on Schedule SE 

(Form 1040). See Limitations on Losses, 

Deductions, and Credits, earlier.

If your partnership is an options dealer or 

a commodities dealer, see section 1402(i).

If your partnership is an investment club, 

see Rev. Rul. 75-525, 1975-2 C.B. 350.

Code B. Gross farming or fishing income. If you are an individual partner, enter 

the amount from this line, as an item of 

information, on Schedule E (Form 1040), 

line 42. Also use this amount to figure net 

earnings from self-employment under the 

farm optional method on Schedule SE (Form 

1040), Section B, Part II.

Code C. Gross nonfarm income. If you 

are an individual partner, use this amount to 

figure net earnings from self-employment 

under the nonfarm optional method on 

Schedule SE (Form 1040), Section B, Part II.

Box 15. Credits

If you have credits that are passive activity 

credits to you, you must complete Form 

8582-CR (or Form 8810 for corporations) in 

addition to the credit forms identified below. 

See Passive Activity Limitations, earlier, and 

the Instructions for Form 8582-CR (or Form 

8810) for details.

Generally, you are not required to 

complete the source credit form or 

attach it to Form 3800 if you are a 

taxpayer that isn't a partnership or S 

corporation, and your only source for a credit 

listed in Form 3800, Part III, is from a 

partnership, S corporation, estate, trust, or 

cooperative. (Instead, you can report this 

credit directly on Form 3800, Part III, and 

enter the EIN of the partnership in column (b) 

of Part III.) The following exceptions apply.

• You are claiming the investment credit 

(Form 3468) or the biodiesel and renewable 

diesel fuels credit (Form 8864) in Part III with 

box A or B checked.

• The taxpayer is an estate or trust and the 

source credit can be allocated to 

beneficiaries. For more details, see the 

Instructions for Form 1041, U.S. Income Tax 

Return for Estates and Trusts, Schedule K-1, 

box 13.

• The taxpayer is a cooperative and the 

source credit can or must be allocated to 

patrons. For more details, see the 

Instructions for Form 1120-C, U.S. Income 

Tax Return for Cooperative Associations, 

Schedule J, line 5c.

Codes A, B, C, and D. Low-income housing credit. If section 42(j)(5) applies, the 

partnership will report your share of the 

low-income housing credit using code A or 

code C, depending on the date the building 

was placed in service. If section 42(j)(5) 

doesn't apply, your share of the credit will be 

reported using code B or code D, depending 

on the date the building was placed in 

service. Any allowable low-income housing 

credit reported using code A or code B is 

reported on line 4 of Form 8586, Low-Income 

Housing Credit, or line 1d of Form 3800 (see 

TIP, earlier). Any allowable low-income 

housing credit reported using code C or 

code D is reported on line 11 of Form 8586 

or line 4d of Form 3800.

Keep a separate record of the 

low-income housing credit from each 

separate source so that you can correctly 

figure any recapture of low-income housing 

credit that may result from the disposition of 

all or part of your partnership interest. For 

more information on recapture, see the 

Instructions for Form 8611, Recapture of 

Low-Income Housing Credit.

Code E. Qualified rehabilitation expenditures (rental real estate). The partnership 

will report your share of the qualified 

rehabilitation expenditures and other 

information you need to complete Form 3468 

related to rental real estate activities using 

code E. Your share of qualified rehabilitation 

expenditures from property not related to 

TIP

-12- Partner's Instructions for Schedule K-1 (Form 1065)
rental real estate activities will be reported in 

box 20 using code D. See the Instructions for 

Form 3468 for details. If the partnership is 

reporting expenditures from more than one 

activity, the attached statement will 

separately identify the expenditures from 

each activity.

Combine the expenditures (for Form 

3468 reporting) from box 15, code E, and 

box 20, code D. The expenditures related to 

rental real estate activities (box 15, code E) 

are reported on Schedule K-1 separately 

from other qualified rehabilitation 

expenditures (box 20, code D) because they 

are subject to different passive activity 

limitation rules. See the Instructions for Form 

8582-CR for details.

Code F. Other rental real estate credits. 

The partnership will identify the type of credit 

and any other information you need to figure 

these credits from rental real estate activities 

(other than the low-income housing credit 

and qualified rehabilitation expenditures). 

These credits may be limited by the passive 

activity limitations. If the credits are from 

more than one activity, the partnership will 

identify the credits from each activity on an 

attached statement. See Passive Activity 

Limitations, earlier, and the Instructions for 

Form 8582-CR for details.

Code G. Other rental credits. The 

partnership will identify the type of credit and 

any other information you need to figure 

these rental credits. These credits may be 

limited by the passive activity limitations. If 

the credits are from more than one activity, 

the partnership will identify the credits from 

each activity on an attached statement. See 

Passive Activity Limitations, earlier, and the 

Instructions for Form 8582-CR for details.

Code H. Undistributed capital gains credit. Code H represents taxes paid on 

undistributed capital gains by a regulated 

investment company or real estate 

investment trust. Report these taxes on 

Schedule 5 (Form 1040), line 74, check box 

“a” for Form 2439, and enter “Form 1065.”

Code I. Biofuel producer credit. Report 

this amount on line 3 of Form 6478, Biofuel 

Producer Credit, or line 4c of Form 3800, 

Part III (see TIP, earlier).

Code J. Work opportunity credit. Report 

this amount on line 3 of Form 5884, Work 

Opportunity Credit, or line 4b of Form 3800, 

Part III (see TIP, earlier).

Code K. Disabled access credit. Report 

this amount on line 7 of Form 8826, Disabled 

Access Credit, or line 1e of Form 3800, Part 

III (see TIP, earlier).

Code L. Empowerment zone employment 

credit. Report this amount on line 3 of Form 

8844, Empowerment Zone Employment 

Credit, or line 3 of Form 3800, Part III (see 

TIP, earlier).

Code M. Credit for increasing research 

activities. Report this amount on line 37 of 

Form 6765, Credit for Increasing Research 

Activities, or in Part III of Form 3800 (see TIP, 

earlier) as follows.

• The partnership will provide information 

necessary to determine if it is an eligible 

small business under section 38(c)(5)(C). If 

you and the partnership are eligible small 

businesses, report the credit on line 4i. For 

more information, see the Instructions for 

Form 3800.

• All others, report the credit on line 1c.

Code N. Credit for employer social security and Medicare taxes. Report this 

amount on line 5 of Form 8846, Credit for 

Employer Social Security and Medicare 

Taxes Paid on Certain Employee Tips, or 

line 4f of Form 3800, Part III (see TIP, 

earlier).

Code O. Backup withholding. This is your 

share of the credit for backup withholding on 

dividends, interest income, and other types 

of income. Include this amount in the total 

you enter on Form 1040, line 16, and attach 

a copy of the Schedule K-1 to your tax 

return. Instead of attaching a copy of the 

Schedule K-1 to the tax return, you can 

include a statement with the return that 

provides the partnership's name, address, 

EIN, and backup withholding amount.

Code P. Other credits. On a statement 

attached to Schedule K-1, the partnership 

will identify the type of credit and any other 

information you need to figure credits other 

than those reported with codes A through O. 

Most credits identified by code P will be 

reported on Form 3800 (see TIP, earlier).

Credits that may be reported with code P 

include the following.

• New markets credit (Form 8874).

• Qualified railroad track maintenance 

credit (Form 8900).

• Unused investment credit from the 

qualifying advanced coal project credit, 

qualifying gasification project credit, or 

qualifying advanced energy project credit 

allocated from cooperatives (Form 3468, 

line 9).

• Unused investment credit from the 

rehabilitation credit or energy credit allocated 

from cooperatives (Form 3468, line 13).

• Renewable electricity, refined coal, and 

Indian coal production credit. The 

partnership will provide a statement showing 

the allocation of the credit for production 

during the 4-year period beginning on the 

date the facility was placed in service and for 

production after that period.

• Indian employment credit (Form 8845).

• Orphan drug credit (Form 8820).

• Enhanced oil recovery credit (Form 8830).

• Credit for small employer pension plan 

startup costs (Form 8881).

• Credit for employer-provided childcare 

facilities and services (Form 8882).

• Biodiesel and renewable diesel fuels 

credit. If this credit includes the small 

agri-biodiesel producer credit, the 

partnership will provide additional 

information on an attached statement. If no 

statement is attached, report this amount on 

line 9 of Form 8864. If a statement is 

attached, see the instructions for Form 8864, 

line 9.

• Low sulfur diesel fuel production credit 

(Form 8896).

• General credits from an electing large 

partnership. Report these credits on Form 

3800, Part III, line 1bb.

• Oil and gas production from marginal 

wells (Form 8904).

• Distilled spirits credit (Form 8906).

• Energy efficient home credit (Form 8908).

• Alternative motor vehicle credit (Form 

8910).

• Alternative fuel vehicle refueling property 

credit (Form 8911).

• Clean renewable energy bond credit. 

Report this amount on Form 8912.

• New clean renewable energy bond credit. 

Report this amount on Form 8912.

• Qualified energy conservation bond 

credit. Report this amount on Form 8912.

• Qualified zone academy bond credit. 

Report this amount on Form 8912.

• Qualified school construction bond credit. 

Report this amount on Form 8912.

• Build America bond credit. Report this 

amount on Form 8912.

• Mine rescue team training credit (Form 

8923).

• Agricultural chemicals security credit 

(Form 8931).

• Credit for employer differential wage 

payments (Form 8932).

• Carbon oxide sequestration credit (Form 

8933).

• Qualified plug-in electric drive motor 

vehicle credit (Form 8936).

• Credit for small employer health insurance 

premiums (Form 8941).

• Employer credit for paid family and 

medical leave (Form 8994).

Box 16. Foreign 

Transactions

Codes A through R. Use the information 

identified by codes A through R, code W, 

code X, and any attached statements to 

figure your foreign tax credit.

Taxpayers filing Form 1116—If you 

have any qualified dividends, capital 

gains (including any capital gain 

distributions), capital losses, collectibles 

gain, collectibles losses, unrecaptured 

section 1250 gain, net section 1231 gain, or 

net section 1231 losses, you may have to 

make certain adjustments to those amounts 

before taking them into account on Form 

1116.

For details, see Form 1116, Foreign Tax 

Credit, and its instructions; Form 1118, 

Foreign Tax Credit—Corporations, and its 

instructions; and Pub. 514, Foreign Tax 

Credit for Individuals.

Codes S and T. Extraterritorial income 

exclusion. 

1. Partnership did not claim the 

exclusion. If the partnership reports your 

share of foreign trading gross receipts (code 

S) and the extraterritorial income exclusion 

(code T), the partnership wasn't entitled to 

claim the exclusion because it didn't meet 

CAUTION

!

Partner's Instructions for Schedule K-1 (Form 1065) -13-
the foreign economic process requirements. 

You may still qualify for your share of this 

exclusion if the partnership's foreign trading 

gross receipts for the tax year were $5 

million or less. To qualify for this exclusion, 

your foreign trading gross receipts from all 

sources for the tax year also must have been 

$5 million or less. If you qualify for the 

exclusion, report the exclusion amount in 

accordance with the instructions for Income 

(Loss), earlier, for box 1, 2, or 3, whichever 

applies. See Form 8873, Extraterritorial 

Income Exclusion, for details.

2. Partnership claimed the exclusion. If 

the partnership reports your share of foreign 

trading gross receipts but not the amount of 

the extraterritorial income exclusion, the 

partnership met the foreign economic 

process requirements and claimed the 

exclusion when figuring your share of 

partnership income. You also may need to 

know the amount of your share of foreign 

trading gross receipts from this partnership 

to determine if you met the $5 million or less 

exception discussed above for purposes of 

qualifying for an extraterritorial income 

exclusion from other sources.

Upon request, the partnership 

should furnish you a copy of the 

partnership's Form 8873 if there is a 

reduction for international boycott 

operations, illegal bribes, kickbacks, and 

other payments.

Codes U through X. Other foreign transactions. 

Code U. Section 951A tested income. 

The partnership will report the aggregate 

amount of its distributive share of tested 

income (without reduction for tested losses) 

as described in section 951A(c)(1)(A).

Code V. Tested foreign income tax. The 

partnership will report tested foreign income 

tax as defined in section 960(d)(3).

Code W. Section 965 information. The 

partnership will report foreign income tax 

information for the calculation of creditable 

foreign income taxes related to the section 

965(a) inclusions. The partnership will attach 

Form 965, including its Schedules F, G, and 

H, to the Schedule K-1.

Code X. Other foreign transactions. On a 

statement attached to Schedule K-1, the 

partnership will report any other information 

on foreign transactions that you may need 

using code X.

The partnership will attach a statement 

that separately identifies any arrangement, 

along with the taxes paid or accrued in 

connection with the arrangement, in which 

the partnership participates that would 

qualify as a splitter arrangement under 

section 909 if one or more partners are 

covered persons regarding an entity that 

took into account related income from the 

arrangement. The statement will also 

indicate whether the partnership has taken 

into account any related income from any 

such splitter arrangement. See section 909 

TIP

and the related regulations for rules 

regarding splitter arrangements.

When the gain deferral method, as 

described in Temporary Regulations section 

1.721(c)-3T is being applied, a partnership 

that is a section 721(c) partnership will attach 

to the Schedule K-1 provided to a U.S. 

transferor the information required under 

Temporary Regulations section 

1.721(c)-6T(b)(2) and (3). A partnership that 

is a section 721(c) partnership will also 

attach to its Form 1065 a Schedule K-1 for 

each partner that is a related foreign person 

with respect to the U.S. transferor. For an 

indirect partner that is a related foreign 

person with respect to the U.S. transferor, 

the Schedule K-1 will only include relevant 

information with respect to section 721(c) 

property. See Temporary Regulations 

section 1.721(c)-1T for definitions.

Box 17. Alternative 

Minimum Tax (AMT) Items

Use the information reported in box 17 (as 

well as your adjustments and tax preference 

items from other sources) to prepare your 

Form 6251, Alternative Minimum 

Tax—Individuals; Form 4626, Alternative 

Minimum Tax—Corporations; or Schedule I 

(Form 1041), Alternative Minimum 

Tax—Estates and Trusts.

A partner that is a corporation 

subject to AMT must notify the 

partnership of its status.

Code A. Post-1986 depreciation adjustment. This amount is your share of the 

partnership's post-1986 depreciation 

adjustment. If you are an individual partner, 

report this amount on line 2l of Form 6251.

Code B. Adjusted gain or loss. This 

amount is your share of the partnership's 

adjusted gain or loss. If you are an individual 

partner, report this amount on line 2k of Form 

6251.

Code C. Depletion (other than oil & gas). 

This amount is your share of the 

partnership's depletion adjustment. If you are 

an individual partner, report this amount on 

line 2d of Form 6251.

Codes D and E. Oil, gas, & geothermal 

properties—gross income and deductions. The amounts reported on these lines 

include only the gross income (code D) from, 

and deductions (code E) allocable to, oil, 

gas, and geothermal properties included in 

box 1 of Schedule K-1. The partnership 

should have attached a statement that 

shows any income from or deductions 

allocable to such properties that are included 

in boxes 2 through 13, 18, and 20 of 

Schedule K-1. Use the amounts reported 

and the amounts on the attached statement 

to help you figure the net amount to enter on 

Form 6251, line 2t.

Code F. Other AMT items. Enter the 

information on the statement attached by the 

partnership on the applicable lines of Form 

TIP

6251, Form 4626, or Schedule I (Form 

1041).

Box 18. Tax-Exempt 

Income and Nondeductible 

Expenses

Code A. Tax-exempt interest income. 

Report on your return, as an item of 

information, your share of the tax-exempt 

interest received or accrued by the 

partnership during the year. Individual 

partners include this amount on Form 1040, 

line 2a. Increase the adjusted basis of your 

interest in the partnership by this amount.

Code B. Other tax-exempt income. 

Increase the adjusted basis of your interest 

in the partnership by the amount shown, but 

do not include it in income on your tax return.

The partnership will attach a 

statement for the amount included 

under code B that is exempt by 

reason of section 892 and describe the 

nature of the income.

Code C. Nondeductible expenses. The 

nondeductible expenses paid or incurred by 

the partnership are not deductible on your 

tax return. Decrease the adjusted basis of 

your interest in the partnership by this 

amount.

Box 19. Distributions

Code A. Cash and marketable securities. 

Code A shows the distributions the 

partnership made to you of cash and certain 

marketable securities. The marketable 

securities are included at their fair market 

value (FMV) on the date of distribution 

(minus your share of the partnership's gain 

on the securities distributed to you). If the 

amount shown as code A exceeds the 

adjusted basis of your partnership interest 

immediately before the distribution, the 

excess is treated as gain from the sale or 

exchange of your partnership interest. 

Generally, this gain is treated as gain from 

the sale of a capital asset and should be 

reported on Form 8949 and the Schedule D 

for your return. However, if you receive cash 

or property in exchange for any part of a 

partnership interest, the amount of the 

distribution attributable to your share of the 

partnership's unrealized receivable or 

inventory items results in ordinary income 

(see Regulations section 1.751-1(a) and 

Sale or Exchange of Partnership Interest, 

earlier). For details, see Pub. 541.

The partnership will separately identify 

both of the following.

• The FMV of the marketable securities 

when distributed (minus your share of the 

gain on the securities distributed to you).

• The partnership's adjusted basis of those 

securities immediately before the 

distribution.

Decrease the adjusted basis of your 

interest in the partnership (but not below 

zero) by the amount of cash distributed to 

TIP

-14- Partner's Instructions for Schedule K-1 (Form 1065)
you and the partnership's adjusted basis of 

the distributed securities. Advances or 

drawings of money or property against your 

share are treated as current distributions 

made on the last day of the partnership's tax 

year.

Your basis in the distributed marketable 

securities (other than in liquidation of your 

interest) is the smaller of:

• The partnership's adjusted basis in the 

securities immediately before the distribution 

increased by any gain recognized on the 

distribution of the securities, or

• The adjusted basis of your partnership 

interest reduced by any cash distributed in 

the same transaction and increased by any 

gain recognized on the distribution of the 

securities.

If you received the securities in liquidation 

of your partnership interest, your basis in the 

marketable securities is equal to the 

adjusted basis of your partnership interest 

reduced by any cash distributed in the same 

transaction and increased by any gain 

recognized on the distribution of the 

securities.

Code B. Distribution subject to section 

737. If a partner contributed section 704(c) 

built-in gain property within the last 7 years 

and the partnership made a distribution of 

property to that partner other than the 

previously contributed built-in gain property, 

the partner may be required to recognize 

gain under section 737. This gain is in 

addition to any gain recognized under 

section 731 on the distribution.

When this occurs, the partnership will 

enter code B in box 19 of the contributing 

partner's Schedule K-1 and attach a 

statement that provides the information the 

partner needs to figure the recognized gain 

under section 737. The partnership is 

required to provide the following information.

• The FMV of the distributed property (other 

than money).

• The amount of money received in the 

distribution.

• The net precontribution gain of the 

partner.

Using the information from the attached 

statement, complete the worksheet below to 

figure your recognized gain under section 

737.

Computation of Section 737 Gain

1. Enter the FMV of the distributed 

property (other than 

money) ........... $

2. Enter your adjusted basis in the 

partnership immediately before 

the distribution. See Basis 

Limitations, earlier ......

3. Enter the amount of money 

received in the distribution .

4. Subtract line 3 from line 2. If zero 

or less, enter -0- .......

5. Subtract line 4 from line 1 . .

6. Enter your net precontribution 

gain .............

7. Section 737 gain. Enter the 

lesser of the amount on line 5 or 

line 6 .............

The type of gain (section 1231 gain, 

capital gain) generated is determined by the 

type of gain you would have recognized if 

you sold the property rather than contributing 

it to the partnership. Accordingly, report the 

amount from line 7, above, on Form 4797 or 

Form 8949 and the Schedule D of your tax 

return.

Code C. Other property. Code C shows 

the partnership's adjusted basis of property 

other than money immediately before the 

property was distributed to you. In addition, 

the partnership should report the adjusted 

basis and FMV of each property distributed. 

Decrease the adjusted basis of your interest 

in the partnership by the amount of your 

basis in the distributed property. Your basis 

in the distributed property (other than in 

liquidation of your interest) is the smaller of:

• The partnership's adjusted basis 

immediately before the distribution, or

• The adjusted basis of your partnership 

interest reduced by any cash distributed in 

the same transaction.

If you received the property in liquidation 

of your interest, your basis in the distributed 

property is equal to the adjusted basis of 

your partnership interest reduced by any 

cash distributed in the same transaction.

If you receive cash or property in 

exchange for any part of a partnership 

interest, the amount of the distribution 

attributable to your share of the partnership's 

unrealized receivable or inventory items 

results in ordinary income (see Regulations 

section 1.751-1(a) and Sale or Exchange of 

Partnership Interest, earlier).

Box 20. Other Information

Code A. Investment income. Report this 

amount on line 4a of Form 4952.

Code B. Investment expenses. Report 

this amount on line 5 of Form 4952.

Code C. Fuel tax credit information. The 

partnership will report the number of gallons 

of each fuel sold or used during the tax year 

for a nontaxable use qualifying for the credit 

for taxes paid on fuels, type of use, and the 

applicable credit per gallon. Use this 

information to complete Form 4136, Credit 

for Federal Tax Paid on Fuels.

Code D. Qualified rehabilitation expenditures (other than rental real estate). The 

partnership will report your share of qualified 

rehabilitation expenditures and other 

information you need to complete Form 3468 

for property not related to rental real estate 

activities in box 20 using code D. Your share 

of qualified rehabilitation expenditures 

related to rental real estate activities is 

reported in box 15 using code E. See the 

Instructions for Form 3468 for details. If the 

partnership is reporting expenditures from 

more than one activity, the attached 

statement will separately identify the 

expenditures from each activity.

Combine the expenditures (for Form 

3468 reporting) from box 15, code E, and 

box 20, code D. The expenditures related to 

rental real estate activities (box 15, code E) 

are reported on Schedule K-1 separately 

from other qualified rehabilitation 

expenditures (box 20, code D) because they 

are subject to different passive activity 

limitation rules. See the Instructions for Form 

8582-CR for details.

Code E. Basis of energy property. If the 

partnership provides an attached statement 

for code E, use the information on the 

statement to complete lines 12a–d, 12f, 12g, 

12i, 12j, 12l, 12m, 12o, and 12q–v of Form 

3468.

Codes F and G. Recapture of low-income 

housing credit. A section 42(j)(5) 

partnership will report recapture of a 

low-income housing credit with code F. All 

other partnerships will report recapture of a 

low-income housing credit with code G. 

Keep a separate record of recapture from 

each of these sources so that you will be 

able to correctly figure any recapture of 

low-income housing credit that may result 

from the disposition of all or part of your 

partnership interest. For details, see Form 

8611.

Code H. Recapture of investment credit. 

The partnership will provide any information 

you need to figure your recapture tax on 

Form 4255, Recapture of Investment Credit. 

See the Form 3468 on which you took the 

original credit for other information you need 

to complete Form 4255.

You may also need Form 4255 if you 

disposed of more than one-third of your 

interest in a partnership.

Code I. Recapture of other credits. On a 

statement attached to Schedule K-1, the 

partnership will report any information you 

need to figure the recapture of the new 

markets credit (see Form 8874 and Form 

8874-B, Notice of Recapture Event for New 

Markets Credit); Indian employment credit 

(see section 45A(d)); any credit for 

employer-provided childcare facilities and 

services (see Form 8882); alternative motor 

vehicle credit (see section 30B(h)(8)); 

alternative fuel vehicle refueling property 

credit (see section 30C(e)(5)); or the new 

Partner's Instructions for Schedule K-1 (Form 1065) -15-
qualified plug-in electric drive motor vehicle 

credit (see section 30D(f)(5)).

Code J. Look-back interest—completed 

long-term contracts. The partnership will 

report any information you need to figure the 

interest due or to be refunded under the 

look-back method of section 460(b)(2) on 

certain long-term contracts. Use Form 8697, 

Interest Computation Under the Look-Back 

Method for Completed Long-Term 

Contracts, to report any such interest.

Code K. Look-back interest—income 

forecast method. The partnership will 

report any information you need to figure the 

interest due or to be refunded under the 

look-back method of section 167(g)(2) for 

certain property placed in service after 

September 13, 1995, and depreciated under 

the income forecast method. Use Form 

8866, Interest Computation Under the 

Look-Back Method for Property Depreciated 

Under the Income Forecast Method, to 

report any such interest.

Code L. Dispositions of property with 

section 179 deductions. The partnership 

will report your share of gain or loss on the 

sale, exchange, or other disposition of 

property for which a section 179 expense 

deduction was passed through to partners 

with code L. If the partnership passed 

through a section 179 expense deduction for 

the property, you must report the gain or loss 

and any recapture of the section 179 

expense deduction for the property on your 

income tax return (see the Instructions for 

Form 4797 for details). The partnership will 

provide all the following information.

1. Description of the property.

2. Date the property was acquired and 

placed in service.

3. Date of the sale or other disposition of 

the property.

4. Your share of the gross sales price or 

amount realized.

5. Your share of the cost or other basis 

plus the expense of sale.

6. Your share of the depreciation 

allowed or allowable.

7. Your share of the section 179 

expense deduction (if any) passed through 

for the property and the partnership's tax 

year(s) in which the amount was passed 

through. To figure the amount of depreciation 

allowed or allowable for Form 4797, line 22, 

add to the amount from item 6, above, the 

amount of your share of the section 179 

expense deduction, reduced by any unused 

carryover of the deduction for this property. 

This amount may be different from the 

amount of section 179 expense you 

deducted for the property if your interest in 

the partnership has changed.

8. If the disposition is due to a casualty 

or theft, a statement providing the 

information you need to complete Form 

4684.

9. If the sale was an installment sale 

made during the partnership's tax year, any 

information you need to complete Form 

6252, Installment Sale Income. The 

partnership will separately report your share 

of all payments received for the property in 

future tax years. See the Form 6252 

instructions for details.

Code M. Recapture of section 179 deduction. The partnership will report your share 

of any recapture of section 179 expense 

deduction if business use of any property for 

which the section 179 expense deduction 

was passed through to partners dropped to 

50% or less. If this occurs, the partnership 

must provide the following information.

1. Your share of the depreciation 

allowed or allowable (not including the 

section 179 expense deduction).

2. Your share of the section 179 

expense deduction (if any) passed through 

for the property and the partnership's tax 

year(s) in which the amount was passed 

through. Reduce this amount by the portion, 

if any, of your unused (carryover) section 

179 expense deduction for this property.

Code N. Interest expense for corporate 

partners. The partnership will report each 

corporate partner's share of the partnership's 

interest expense. This amount is reported 

elsewhere on Schedule K-1 and the total 

amount is reported here for information only. 

Your share of interest income is reported in 

box 5 and your share of the partnership's 

liabilities is reported in Part II, item K. A 

corporate partner's share of interest income, 

interest expense, and partnership liabilities 

are treated as income, expense, and 

liabilities of the corporation for purposes of 

the limitation on the deduction for interest 

under section 163(j).

Code O. Section 453(l)(3) information. 

The partnership will report any information 

you need to figure the interest due under 

section 453(l)(3) with respect to the 

disposition of certain timeshares and 

residential lots on the installment method. If 

you are an individual, report the interest on 

Schedule 4 (Form 1040), line 62. Check box 

c and enter “453(l)(3)” and the amount of the 

interest in the space to the left of line 62.

Code P. Section 453A(c) information. 

The partnership will report any information 

you need to figure the interest due under 

section 453A(c) with respect to certain 

installment sales. If you are an individual, 

report the interest on Schedule 4 (Form 

1040), line 62. Check box c and enter 

“453A(c)” and the amount of the interest in 

the space to the left of line 62. See the Form 

6252 instructions for more information. Also 

see section 453A(c) for details on how to 

figure the interest.

Code Q. Section 1260(b) information. 

The partnership will report any information 

you need to figure the interest due under 

section 1260(b). If the partnership had gain 

from certain constructive ownership 

transactions, your tax liability must be 

increased by the interest charge on any 

deferral of gain recognition under section 

1260(b). Report the interest on Schedule 4 

(Form 1040), line 62. Enter “1260(b)” and the 

amount of the interest in the space to the left 

of line 62. See section 1260(b) for details, 

including how to figure the interest.

Code R. Interest allocable to production 

expenditures. The partnership will report 

any information you need relating to interest 

you are required to capitalize under section 

263A for production expenditures. See 

Regulations sections 1.263A-8 through 

1.263A-15 for details.

Code S. CCF nonqualified withdrawals. 

The partnership will report your share of 

nonqualified withdrawals from a capital 

construction fund (CCF). These withdrawals 

are taxed separately from your other gross 

income at the highest marginal ordinary 

income or capital gains tax rate. Attach a 

statement to your federal income tax return 

to show your computation of both the tax and 

interest for a nonqualified withdrawal. 

Include the tax and interest on Schedule 4 

(Form 1040), line 62. In the space to the left 

of line 62, enter the amount of tax and 

interest and “CCF.”

Code T. Depletion information—oil and 

gas. This is your share of gross income 

from the property, share of production for the 

tax year, and other information needed to 

figure your depletion deduction for oil and 

gas wells. The partnership should also 

allocate to you a share of the adjusted basis 

of each partnership oil or gas property. See 

Pub. 535 for details on how to figure your 

depletion deduction.

Code U. Reserved. 

Code V. Unrelated business taxable income. The partnership will report any 

information you need to figure unrelated 

business taxable income under section 

512(a)(1) (but excluding any modifications 

required by paragraphs (8) through (15) of 

section 512(b)) for a partner that is a 

tax-exempt organization.

A partner is required to notify the 

partnership of its tax-exempt status.

Code W. Precontribution gain (loss). If 

the partnership distributed any property with 

precontribution gain or loss to any partner 

other than the contributing partner, and the 

date of the distribution was within 7 years of 

the date the property was contributed to the 

partnership, the contributing partner must 

recognize a gain or loss under section 704(c)

(1)(B). If the partnership made such a 

distribution during its tax year, it will enter 

code W in box 20 of the contributing 

partner's Schedule K-1 and attach a 

statement providing the amount of the 

partner's precontribution gain (loss) and 

identifying the character of the gain or loss 

(for example, capital gain (loss) or section 

1231 gain (loss)). Report the precontribution 

gain or loss on Form 8949/Schedule D or 

Form 4797 in accordance with the 

information provided by the partnership.

Code X. Section 108(i) information. If the 

partnership made a section 108(i) election or 

TIP

-16- Partner's Instructions for Schedule K-1 (Form 1065)
allocates any section 108(i) items to its 

partners, it will provide a statement 

identifying your share of:

• The deferred section 108(i) cancellation of 

debt (COD) income that has not been 

included in income in the current or prior tax 

years,

• The partnership's original issue discount 

(OID) deduction deferred under section 

108(i)(2)(A)(i) that has not been deducted in 

the current or prior tax years,

• The deferred section 752 amount that is 

treated as a distribution of money under 

section 752 in the current tax year, and

• The deferred section 752 amount 

remaining as of the end of the current tax 

year.

Code Y. Net investment income. The 

partnership may use this code Y to report 

information you may need to determine your 

net investment income tax under section 

1411, including information regarding 

income from controlled foreign corporations 

(CFCs) and passive foreign investment 

companies (PFICs) the stock of which is 

owned by the partnership. Any information 

that isn't provided elsewhere on 

Schedule K-1 (or an attachment to 

Schedule K-1) is provided using code Y. For 

CFCs and PFICs that you treat as qualified 

electing funds (QEFs), the information that is 

relevant to you will depend on whether you, 

the partnership, or a lower-tier entity has 

made an election under Regulations section 

1.1411-10(g) with respect to the CFC or 

QEF. For example, if the partnership made 

an election under Regulations section 

1.1411-10(g) for a CFC the stock of which is 

owned by the partnership, and the relevant 

income and deduction items derived from 

that CFC are reported elsewhere on the 

Schedule K-1, then you will not need the 

information provided in code Y to complete 

your Form 8960.

If you are an individual who is a U.S. 

citizen or resident, or a domestic trust or 

estate, follow the Instructions for Form 8960 

to figure and report your net investment 

income and adjusted gross income or 

modified adjusted gross income. Corporate 

partners are not subject to the net investment 

income tax. See Regulations sections 

1.1411-1 through -10 for details.

Codes Z through AD. Qualified business 

income deduction. Generally, you are 

allowed a deduction up to 20% of your net 

qualified business income plus 20% of 

qualified REIT dividends and qualified PTP 

income from your partnership. The 

partnership will provide the information 

needed to figure your deduction. Once you 

have this information, you will use one of two 

worksheets to help you figure your deduction 

for qualified business income.

Use Qualified Business Income 

Deduction—Simplified Worksheet, included 

in the Instructions for Form 1040, if:

• You have qualified business income, 

(defined below),

• Your 2018 taxable income does not 

exceed $157,500 ($315,000 if married filing 

jointly), and

• You are not a patron in a specified 

agricultural or horticultural cooperative.

Use the worksheet and the instructions in 

Pub. 535 if you do not meet all three of these 

requirements.

Code Z. Section 199A qualified business 

income. Use the appropriate worksheet to 

report your portion of qualified business 

income.

• Qualified Business Income 

Deduction—Simplified Worksheet, line 1. 

See the Instructions for Form 1040.

• Pub. 535 Worksheet. If a specified service 

trade or business, see Schedule A; if you are 

electing to aggregate this trade or business 

with another, see Schedule B; if any of your 

qualified trades or businesses generated a 

net loss, see Schedule C; otherwise enter 

information on lines 1 and 2.

Code AA. Section 199A W-2 wages from 

the trade or business. Report the portion 

of Form W-2 wages reported to you by the 

partnership on the appropriate worksheet.

• Qualified Business Income 

Deduction—Simplified Worksheet. This item 

is not required to be reported. See the 

Instructions for Form 1040.

• Pub. 535 Worksheet. If a specified service 

trade or business, see Schedule A; if you are 

electing to aggregate this trade or business 

with another, see Schedule B; otherwise 

enter on line 4.

Code AB. Section 199A unadjusted basis 

on acquisition of qualified property. 

Report the portion of unadjusted basis of 

qualified property reported to you by the 

partnership on the appropriate worksheet.

• Qualified Business Income 

Deduction—Simplified Worksheet. This item 

is not required to be reported. See the 

Instructions for Form 1040.

• Pub. 535 Worksheet, If a specified service 

trade or business, see Schedule A ; if you 

are electing to aggregate this trade or 

business with another, see Schedule B; 

otherwise enter on line 7.

Code AC. Section 199A REIT dividends. 

Report the portion of qualified REIT 

dividends reported to you by the partnership 

on the appropriate worksheet.

• Qualified Business Income 

Deduction—Simplified Worksheet, line 6. 

See the Instructions for Form 1040.

• Worksheet in Pub. 535, line 28. See Pub. 

535.

Code AD. Qualified publicly traded partnership (PTP) income. Report the portion 

of qualified PTP income reported to you by 

the partnership on the appropriate 

worksheet.

• Qualified Business Income 

Deduction—Simplified Worksheet, line 6. 

See the Instructions for Form 1040.

• Worksheet in Pub. 535, line 28. See Pub. 

535.

Code AE. Excess taxable income. If the 

partnership was required to file Form 8990, 

Limitation on Business Interest Expense 

Under Section 163(j), it may determine it has 

excess taxable income. Report the amount 

of excess taxable income on Form 8990, 

Schedule A, line 43(f) if you are required to 

file Form 8990. See the Instructions for Form 

8990 for additional information.

Code AF. Excess business interest income. If the partnership is required to file 

Form 8990, Limitation on Business Interest 

Expense Under Section 163(j), it may 

determine it has excess business interest 

income. Enter the amount of excess 

business interest income on Form 8990, 

Schedule A, line 43(g), if you are required to 

file Form 8990. See the Instructions for Form 

8990 for additional information.

Code AG. Partner’s share of gross receipts. This code has been added to report 

each partner's share of the gross receipts 

under section 59A(e). If the partner is a 

foreign person, only gross receipts 

effectively connected with the conduct of a 

trade or business within the United States 

shall be taken into account.

Code AH. Other information. The 

partnership will report the following.

1. Any information a PTP needs to 

determine whether it meets the 90% 

qualifying income test of section 7704(c)(2).

A partner is required to notify the 

partnership of its status as a PTP.

2. Any information you need to 

complete a disclosure statement for 

reportable transactions in which the 

partnership participates. If the partnership 

participates in a transaction that must be 

disclosed on Form 8886, Reportable 

Transaction Disclosure Statement, both you 

and the partnership may be required to file 

Form 8886 for the transaction. The 

determination of whether you are required to 

disclose a transaction of the partnership is 

based on the category(s) under which the 

transaction qualifies for disclosure and is 

determined by you and the partnership. You 

may have to pay a penalty if you are required 

to file Form 8886 and do not do so. See the 

Instructions for Form 8886 for details.

3. Noncash charitable contributions. If 

the partnership made a noncash charitable 

contribution, your share of the partnership’s 

adjusted basis in the property is limited to 

basis and is reported here.

4. Interest and additional tax on 

compensation deferred under a section 

409A nonqualified deferred compensation 

plan that doesn't meet the requirements of 

section 409A. See section 409A(a)(1)(B) to 

figure the interest and additional tax on this 

income. Report this interest and tax on 

Schedule 4 (Form 1040), line 62. This 

income is included in the amount in box 4, 

Guaranteed payments.

5. Inversion gain. The partnership will 

provide a statement showing the amounts of 

each type of income or gain that is included 

in inversion gain. The partnership has 

included inversion gain in income elsewhere 

on Schedule K-1. Inversion gain is also 

reported under code AH because your 

taxable income and alternative minimum 

TIP

Partner's Instructions for Schedule K-1 (Form 1065) -17-
taxable income cannot be less than the 

inversion gain. Also, your inversion gain (a) 

isn't taken into account in figuring the net 

operating loss (NOL) for the tax year or the 

NOL that can be carried over to each tax 

year, (b) may limit your credits, and (c) is 

treated as income from sources within the 

United States for the foreign tax credit. See 

section 7874 for details.

6. Qualifying advanced coal project 

property. Use the amounts the partnership 

provides you to figure the amounts to report 

on Form 3468, lines 5a through 5c.

7. Qualifying gasification project 

property. Use the amounts the partnership 

provides you to figure the amounts to report 

on Form 3468, lines 6a and 6b.

8. Qualifying advanced energy project 

property. Use the amount the partnership 

provides you to figure the amount to report 

on Form 3468, line 7.

9. The information needed to complete 

Schedule P (Form 1120-F), List of Foreign 

Partner Interests in Partnerships. When 

required, the partnership will make this report 

on an attached statement to partners that are 

a corporation (identified as a foreign partner 

under Regulations section 1.1446-1(c)(3)) or 

partners that are a partnership (domestic or 

foreign) if the reporting partnership knows, or 

has reason to know, that one or more of the 

partners is a foreign corporation. If the 

partnership allocates effectively connected 

income to the partner, the statement will 

contain the information needed to complete 

lines 1 through 10, 13, 14, 15b, 17a, 17b, 

and 18 of Schedule P (Form 1120-F). If the 

partnership doesn't allocate effectively 

connected income to the partner, the 

statement will contain the information 

needed to complete lines 13, 14, and 18 of 

Schedule P (Form 1120-F).

10. Conservation reserve program 

payments. Individuals who received social 

security retirement or disability benefits, and 

are partners in farm partnerships that receive 

conservation reserve program payments, do 

not pay self-employment tax on their portion 

of the payments. The partnership will report 

your portion of the conservation reserve 

program payments in box 20 using code AH. 

See Schedule SE (Form 1040) for 

information on excluding the payment from 

your calculation of self-employment tax.

11. Acceleration of alternative minimum 

tax (AMT) credit (corporations only). If a 

corporate partner has made an election to 

accelerate the AMT credit in lieu of bonus 

depreciation, it is required to notify the 

partnership in writing of this election. See 

Rev. Proc. 2009-16, 2009-6 I.R.B. 449, and 

Rev. Proc. 2009-33, 2009-29 I.R.B. 150, for 

more information about the written 

notification that the electing corporate 

partner must provide the partnership. The 

partnership is required to refigure the 

electing corporate partner's share of 

depreciation on any eligible qualified 

property or extension property to eliminate 

bonus depreciation and use the straight line 

depreciation method for such property. The 

partnership will attach a statement to 

Schedule K-1 that lists each partnership item 

that includes bonus depreciation and shows 

the electing corporate partner's adjustment 

for each item that results from the refigured 

depreciation and elimination of the bonus 

depreciation. The partner must adjust the 

amount shown on Schedule K-1 for these 

partnership items by the amount of the 

corresponding adjustment. See section 

168(k)(4) for more information.

12. Any information you may need to 

comply with the limitation on excess 

business losses of certain taxpayers under 

section 461. See section 461 and Form 461 

and its instructions.

13. Section 250, effective for tax years 

beginning after 2017, allows a domestic 

corporation a deduction for the eligible 

percentage of FDII and GILTI. If applicable, 

the partnership will provide the necessary 

information to each domestic corporate 

partner for its calculation of this deduction.

14. The partnership will provide 

information for you to determine your 

effectively connected gain or loss under 

section 864(c)(8) if you are a nonresident 

alien or foreign corporate partner that had 

gain or loss from the sale, exchange, or other 

disposition of your partnership interest.

15. If the partnership is a section 721(c) 

partnership, the partnership should include 

the amounts relating to any remedial items 

made under the remedial allocation method 

(described in Regulations section 1.704-3(d) 

and Temporary Regulations section 

1.704-3T(d)(5)(iii)) with respect to section 

721(c) property allocable to each partner. 

The partnership will include a separate code 

AH for the total remedial income, if any, 

allocated to the U.S. transferor; total gain 

recognized due to an acceleration event; or 

total gain recognized due to a section 367 

transfer reflected on Form 8865, 

Schedule G, Part II, columns (c), (d), and (e), 

respectively. Only the amount of the total 

remedial income allocated to the U.S. 

transferor will be included in Schedule K-1, 

Part III, Line 1. Any recognized gain due to 

an acceleration event or Section 367 transfer 

must be separately reported by the U.S. 

transferor on its own federal income tax 

return. For all other partners of the section 

721(c) partnership, a separate code AH is 

used to provide the remedial items allocated 

to that partner relating to section 721(c) 

property that was taken into account to 

determine Part III, line 1. See Temporary 

Regulations sections 1.721(c)-3T and 

1.721(c)-6T.

16. Section 1061 information. The 

partnership will furnish to the partners any 

information needed to figure their capital 

gains with respect to an applicable 

partnership interest.

17. Partners’s share of the adjusted basis 

of noncash and capital gain property 

contributions, and share of the excess of the 

FMV over the adjusted basis of noncash and 

capital gain property contributions.

18. Patron reduction and domestic 

production activities deduction under section 

199A(g)(2). If the partnership is a patron of 

an agricultural or horticultural cooperative, 

you must figure your patron reduction using 

Schedule D in Pub. 535. You may also be 

allowed a domestic production activities 

deduction, if one is passed through the 

cooperative, to the partnership, to you. See 

Pub 535 for more information.

19. Any other information you may need 

to file your return not shown elsewhere on 

Schedule K-1.

The partnership should give you a 

description and the amount of your share for 

each of these items.

-18- Partner's Instructions for Schedule K-1 (Form 1065)