This document provides instructions for a partner's Schedule K-1 tax form from a partnership. It outlines that:
1) The partnership uses Schedule K-1 to report a partner's share of income, credits, deductions, etc. and files it with the IRS but not the partner's tax return.
2) Partners are liable for tax on their share of partnership income whether distributed or not and must include it on their tax return if one is required.
3) The amount of losses and deductions partners can claim may be less than reported due to various limitations that partners must consider.
This document provides instructions for a partner's Schedule K-1 tax form from a partnership. It outlines that:
1) The partnership uses Schedule K-1 to report a partner's share of income, credits, deductions, etc. and files it with the IRS but not the partner's tax return.
2) Partners are liable for tax on their share of partnership income whether distributed or not and must include it on their tax return if one is required.
3) The amount of losses and deductions partners can claim may be less than reported due to various limitations that partners must consider.
This document provides instructions for a partner's Schedule K-1 tax form from a partnership. It outlines that:
1) The partnership uses Schedule K-1 to report a partner's share of income, credits, deductions, etc. and files it with the IRS but not the partner's tax return.
2) Partners are liable for tax on their share of partnership income whether distributed or not and must include it on their tax return if one is required.
3) The amount of losses and deductions partners can claim may be less than reported due to various limitations that partners must consider.
Schedule K-1 (Form 1065) Partner’s Share of Income, Credits, Deductions, etc. (For Partner’s Use Only) Section references are to the Inter nal Revenue Code unless otherwise noted.
General Instructions If you are required to file Form 8082 but
fail to do so, you may be subject to the If a partner is required to notify the partnership of a section 751(a) exchange accuracy-related penalty. This penalty is in but fails to do so, a $50 penalty may be Purpose of Schedule K-1 addition to any tax that results from imposed for each such failure. However, The partnership uses Schedule K-1 to making your amount or treatment of the no penalty will be imposed if the partner report your share of the partnership’s item consistent with that shown on the can show that the failure was due to income, credits, deductions, etc. Keep it partnership’s return. Any deficiency that reasonable cause and not willful neglect. for your records. Do not file it with your results from making the amounts tax return. The partnership has filed a consistent may be assessed immediately. Nominee Reporting copy with the IRS. Any person who holds, directly or Although the partnership is not subject Errors indirectly, an interest in a partnership as a to income tax, you are liable for tax on If you believe the partnership has made an nominee for another person must furnish a your share of the partnership income, error on your Schedule K-1, notify the written statement to the partnership by the whether or not distributed. Include your partnership and ask for a corrected last day of the month following the end of share on your tax return if a return is Schedule K-1. Do not change any items on the partnership’s tax year. This statement required. Use these instructions to help your copy of Schedule K-1. Be sure that must include the name, address, and you report the items shown on Schedule the partnership sends a copy of the identifying number of the nominee and K-1 on your tax return. corrected Schedule K-1 to the IRS. If you such other person, description of the The amount of loss and deduction that are a partner in a partnership that does not partnership interest held as nominee for you may claim on your tax return may be meet the small partnership exception and that person, and other information required less than the amount reported on Schedule you report any partnership item on your by Temporary Regulations section K-1. It is the partner’s responsibility to return in a manner different from the way 1.6031(c)-1T. A nominee that fails to consider and apply any applicable the partnership reported it, you must file furnish this statement must furnish to the limitations. See Limitations on Losses, Form 8082. person for whom the nominee holds the Deductions, and Credits beginning on partnership interest a copy of Schedule page 2 for more information. Sale or Exchange of K-1 and related information within 30 days Where “attach schedule” appears beside of receiving it from the partnership. a line item on Schedule K-1, see either the Partnership Interest Note: A nominee who fails to furnish when schedule that the partnership has attached Generally, a partner who sells or due all the information required by for that line or line 25 of Schedule K-1. exchanges a partnership interest in a Temporary Regulations section section 751(a) exchange must notify the 1.6031(c)-1T, or who furnishes incorrect Inconsistent Treatment of partnership, in writing, within 30 days of information, is subject to a $50 penalty for the exchange (or, if earlier, by January 15 each statement for which a failure occurs. Items of the calendar year following the calendar The maximum penalty is $100,000 for all Generally, you must report partnership year in which the exchange occurred). A such failures during a calendar year. If the items shown on your Schedule K-1 (and “section 751(a) exchange” is any sale or nominee intentionally disregards the any attached schedules) the same way exchange of a partnership interest in which requirement to report correct information, that the partnership treated the items on any money or other property received by each $50 penalty increases to $100 or, if its return. This rule does not apply if your the partner in exchange for that partner’s greater, 10% of the aggregate amount of partnership is within the “small partnership interest is attributable to unrealized items required to be reported (and the exception” and does not elect to have the receivables (as defined in section 751(c)) or $100,000 maximum does not apply). tax treatment of partnership items substantially appreciated inventory items determined at the partnership level. (as defined in section 751(d)). U.S. Persons With Interests The written notice to the partnership If the treatment on your original or must include the names and addresses of in Foreign Partnerships amended return is inconsistent with the partnership’s treatment, or if the both parties to the exchange, the If you are a U.S. person in a foreign partnership was required to but has not identifying numbers of the transferor and (if partnership that does not file a partnership filed a return, you must file Form 8082, known) of the transferee, and the return, you may be required to furnish Notice of Inconsistent Treatment or exchange date. information necessary to determine your Amended Return (Administrative An exception to this rule is made for correct income (loss) from the partnership. Adjustment Request (AAR)), with your sales or exchanges of publicly traded original or amended return to identify and partnership interests for which a broker is International Boycotts explain any inconsistency (or to note that a required to file Form 1099-B, Proceeds partnership return has not been filed). From Broker and Barter Exchange Every partnership that had operations in, or Transactions. related to, a boycotting country, company,
Cat. No. 11396N
or a national of a country must file Form these instructions at most IRS offices. To (such as the section 179 expense 5713, International Boycott Report. order publications and forms, call deduction) that you can claim to the If the partnership cooperated with an 1-800-TAX-FORM (1-800-829-3676). amount you could actually lose in the international boycott, it must give you a activity. However, if you acquired your copy of its Form 5713. You must file your Limitations on Losses, partnership interest before 1987, the at-risk own Form 5713 to report the partnership’s rules do not apply to losses from an activities and any other boycott operations Deductions, and Credits activity of holding real property placed in that you may have. You may lose certain There are three separate potential service before 1987 by the partnership. tax benefits if the partnership participated limitations on the amount of partnership The activity of holding mineral property in, or cooperated with, an international losses that you may deduct on your return. does not qualify for this exception. The boycott. See Form 5713 and the These limitations and the order in which partnership should identify on an instructions for more information. you must apply them are as follows: the attachment to Schedule K-1 the amount of basis rules, the at-risk limitations, and the any losses that are not subject to the passive activity limitations. Each of these at-risk limitations. Definitions limitations is discussed separately below. Generally, you are not at risk for General Partner Note: Other limitations may apply to amounts such as the following: A general partner is a partner who is specific deductions (e.g., the section 179 ● Nonrecourse loans used to finance the personally liable for partnership debts. expense deduction). These limitations on activity, to acquire property used in the specific deductions generally apply before activity, or to acquire your interest in Limited Partner the basis, at-risk, and passive loss the activity, that are not secured by your limitations. own property (other than the property used A limited partner is a partner in a in the activity). See the instructions for item partnership formed under a state limited Basis Rules F on page 5, for the exception for qualified partnership law, whose personal liability for nonrecourse financing secured by real partnership debts is limited to the amount Generally, you may not claim your share of a partnership loss (including a capital loss) property. of money or other property that the partner to the extent that it is greater than the ● Cash, property, or borrowed amounts contributed or is required to contribute to adjusted basis of your partnership interest used in the activity (or contributed to the the partnership. Some members of other at the end of the partnership’s tax year. activity, or used to acquire your interest in entities, such as domestic or foreign The partnership is not responsible for the activity) that are protected against loss business trusts or limited liability keeping the information needed to figure by a guarantee, stop-loss agreement, or companies that are classified as the basis of your partnership interest. other similar arrangement (excluding partnerships, may be treated as limited Although the partnership does provide an casualty insurance and insurance against partners for certain purposes. See, for analysis of the changes to your capital tort liability). example, Temporary Regulations section 1.469-5T(e)(3), which treats all members account in Item J of Schedule K-1, that ● Amounts borrowed for use in the activity with limited liability as limited partners for information is based on the partnership’s from a person who has an interest in the purposes of section 469(h)(2). books and records and cannot be used to activity, other than as a creditor, or who is figure your basis. related, under section 465(b)(3), to a Nonrecourse Loans You can compute the adjusted basis of person (other than you) having such an your partnership interest by adding items interest. Nonrecourse loans are those liabilities of the partnership for which no partner bears that increase your basis and then To help you complete Form 6198, the the economic risk of loss. subtracting items that decrease your basis. partnership should specify on an Items that increase your basis are: attachment to Schedule K-1 your share of the total pre-1976 losses from a section Elections ● Money and your adjusted basis in 465(c)(1) activity for which there existed a property contributed to the partnership. corresponding amount of nonrecourse Generally, the partnership decides how to figure taxable income from its operations. ● Your share of the partnership’s income. liability at the end of the year in which the However, certain elections are made by ● Your share of the increase in the losses occurred. Also, you should get a you separately on your income tax return partnership’s liabilities (or your individual separate statement of income, expenses, and not by the partnership. These liabilities caused by your assumption of etc., for each activity from the partnership. elections are made under the following partnership liabilities). code sections: Passive Activity Limitations Items that decrease your basis are: ● Section 59(e) (deduction of certain ● Money and the adjusted basis of Section 469 provides rules that limit the qualified expenditures ratably over the deduction of certain losses and credits. property distributed to you. period of time specified in that section). These rules apply to partners who: For more information, see the instructions ● Your share of the partnership’s losses. ● Are individuals, estates, trusts, closely for lines 18a and 18b of Schedule K-1 on ● Your share of the decrease in the held corporations, or personal service page 9. partnership’s liabilities (or your individual corporations, and ● Section 108(b)(5) (income from the liabilities assumed by the partnership). ● Have a passive activity loss or credit for discharge of indebtedness). The above is not a complete list of items the tax year. ● Section 617 (deduction and recapture of and factors that determine basis. See Pub. Generally, passive activities include: certain mining exploration expenditures). 541 for more information. 1. Trade or business activities in which ● Section 901 (foreign tax credit). At-Risk Limitations you did not materially participate, and Generally, if you have (a) a loss or other 2. Activities that meet the definition of Additional Information deduction from any activity carried on as a rental activities under Temporary For more information on the treatment of trade or business or for the production of Regulations section 1.469-1T(e)(3) and partnership income, credits, deductions, income by the partnership, and (b) Regulations section 1.469-1(e)(3). etc., get Pub. 541, Tax Information on amounts in the activity for which you are Passive activities do not include: Partnerships; Pub. 535, Business not at risk, you will have to complete Form 1. Trade or business activities in which Expenses; and Pub. 556, Examination of 6198, At-Risk Limitations, to figure your you materially participated. Returns, Appeal Rights, and Claims for allowable loss. 2. Rental real estate activities in which Refund. The at-risk rules generally limit the you materially participated if you were a You can get the above publications and amount of loss (including loss on the “real estate professional” for the tax year. other publications referenced throughout disposition of assets) and other deductions Page 2 You were a real estate professional only if in each rental real estate activity held with an activity held through a partnership you met both of the following conditions: through the partnership. All (where you own your partnership interest a. More than half of the personal determinations of material participation at the time the work is done) is counted services you performed in trades or are made regarding your participation toward material participation. However, businesses were performed in real property during the partnership’s tax year. work in connection with the activity is not trades or businesses in which you Material participation standards for counted toward material participation if materially participated, and partners who are individuals are listed either of the following applies. b. You performed more than 750 hours below. Special rules apply to certain retired 1. The work is not the sort of work that of services in real property trades or or disabled farmers and to the surviving owners of the activity would usually do and businesses in which you materially spouses of farmers. See the Instructions one of the principal purposes of the work participated. for Form 8582 for details. that you or your spouse does is to avoid Corporations should refer to the the passive loss or credit limitations. Note: For a closely held C corporation (defined in section 465(a)(1)(B)), the above Instructions for Form 8810 for the material 2. You do the work in your capacity as conditions are treated as met if more than participation standards that apply to them. an investor and you are not directly 50% of the corporation’s gross receipts Individuals (other than limited involved in the day-to-day operations of were from real property trades or partners).—If you are an individual (either the activity. Examples of work done as an businesses in which the corporation a general partner or a limited partner who investor that would not count toward materially participated. owned a general partnership interest at all material participation include times during the tax year), you materially (a) studying and reviewing financial For purposes of this rule, each interest in statements or reports on operations of the rental real estate is a separate activity, participated in an activity only if one or more of the following apply: activity; (b) preparing or compiling unless you elect to treat all interests in summaries or analyses of the finances or rental real estate as one activity. 1. You participated in the activity for operations of the activity for your own use; If you are married filing jointly, either you more than 500 hours during the tax year. and (c) monitoring the finances or or your spouse must separately meet both 2. Your participation in the activity for operations of the activity in a of the above conditions, without taking into the tax year constituted substantially all nonmanagerial capacity. account services performed by the other the participation in the activity of all Effect of determination.—If you spouse. individuals (including individuals who are determine that you materially participated A real property trade or business is any not owners of interests in the activity). in (a) a trade or business activity of the real property development, redevelopment, 3. You participated in the activity for partnership, or (b) if you were a real estate construction, reconstruction, acquisition, more than 100 hours during the tax year, professional (defined above), in a rental conversion, rental, operation, management, and your participation in the activity for the real estate activity of the partnership, leasing, or brokerage trade or business. tax year was not less than the participation report the income (loss), deductions, and Services you performed as an employee in the activity of any other individual credits from that activity as indicated in are not treated as performed in a real (including individuals who were not owners either column (c) of Schedule K-1 or the property trade or business unless you of interests in the activity) for the tax year. instructions for each line. owned more than 5% of the stock (or more 4. The activity was a significant If you determine that you did not than 5% of the capital or profits interest) in participation activity for the tax year, and materially participate in a trade or business the employer. you participated in all significant activity of the partnership or if you have 3. Working interests in oil or gas wells if participation activities (including activities income (loss), deductions, or credits from a you were a general partner. outside the partnership) during the year for rental activity of the partnership (other than 4. The rental of a dwelling unit any more than 500 hours. A “significant a rental real estate activity in which you partner used for personal purposes during participation activity” is any trade or materially participated, if you were a real the year for more than the greater of 14 business activity in which you participated estate professional), the amounts from that days or 10% of the number of days that for more than 100 hours during the year activity are passive. Report passive income the residence was rented at fair rental and in which you did not materially (losses), deductions, and credits as value. participate under any of the material follows: participation tests (other than this test 4). 1. If you have an overall gain (the excess 5. Activities of trading personal property for the account of owners of interests in 5. You materially participated in the of income over deductions and losses, the activities. activity for any 5 tax years (whether or not including any prior year unallowed loss) consecutive) during the 10 tax years that from a passive activity, report the income, If you are an individual, an estate, or a immediately precede the tax year. deductions, and losses from the activity as trust, and you have a passive activity loss 6. The activity was a personal service indicated on Schedule K-1 or in these or credit, get Form 8582, Passive Activity activity and you materially participated in instructions. Loss Limitations, to figure your allowable passive losses and Form 8582-CR, the activity for any 3 tax years (whether or 2. If you have an overall loss (the excess Passive Activity Credit Limitations, to figure not consecutive) preceding the tax year. A of deductions and losses, including any your allowable passive credits. For a “personal service activity” involves the prior year unallowed loss, over income) or corporation, get Form 8810, Corporate performance of personal services in the credits from a passive activity, report the Passive Activity Loss and Credit fields of health, law, engineering, income, deductions, losses, and credits Limitations. See the instructions for these architecture, accounting, actuarial science, from all passive activities following the forms for more information. performing arts, consulting, or any other Instructions for Form 8582 or Form trade or business in which capital is not a 8582-CR (or Form 8810), to see if your If the partnership had more than one material income-producing factor. deductions, losses, and credits are limited activity, it will attach a statement to your 7. Based on all the facts and under the passive activity rules. Schedule K-1 that identifies each activity (trade or business activity, rental real circumstances, you participated in the Publicly traded partnerships.—The estate activity, rental activity other than activity on a regular, continuous, and passive activity limitations are applied rental real estate, etc.) and specifies the substantial basis during the tax year. separately for items (other than the income (loss), deductions, and credits from Limited partners.—If you are a limited low-income housing credit and the each activity. partner, you do not materially participate in rehabilitation credit) from each publicly an activity unless you meet one of the traded partnership (PTP). Thus, a net Material participation.—You must tests in paragraphs 1, 5, or 6 above. passive loss from a PTP may not be determine if you materially participated (a) deducted from other passive income. in each trade or business activity held Work counted toward material Instead, a passive loss from a PTP is through the partnership and (b) if you were participation.—Generally, any work that suspended and carried forward to be a real estate professional (defined above), you or your spouse does in connection applied against passive income from the Page 3 same PTP in later years. If the partner’s losses as a passive loss in column (g). the activity was less than 10% (by value) entire interest in the PTP is completely Carry forward to 1996 the unallowed loss of all interests in the activity. disposed of, any unused losses are of $4,800 ($12,000–$7,200). Active participation is a less stringent allowed in full in the year of disposition. If you have unallowed losses from more requirement than material participation. If you have an overall gain from a PTP, than one activity of the PTP or from the You may be treated as actively the net gain is nonpassive income. In same activity of the PTP that must be participating if you participated, for addition, the nonpassive income is reported on different forms, you must example, in making management decisions included in investment income to figure allocate the unallowed losses on a pro rata or arranging for others to provide services your investment interest expense basis to figure the amount allowed from (such as repairs) in a significant and bona deduction. each activity or on each form. fide sense. Management decisions that Do not report passive income, gains, or Tax tip. To allocate and keep a record of can count as active participation include losses from a PTP on Form 8582. Instead, the unallowed losses, use Worksheets 4, 5, approving new tenants, deciding rental use the following rules to figure and report and 6 of Form 8582. List each activity of terms, approving capital or repair on the proper form or schedule your the PTP in Worksheet 4. Enter the overall expenditures, and other similar decisions. income, gains, and losses from passive loss from each activity in column (a). An estate is a qualifying estate if the activities that you held through each PTP Complete column (b) of Worksheet 4 decedent would have satisfied the active you owned during the tax year: according to its instructions. Multiply the participation requirement for the activity for 1. Combine any current year income, total unallowed loss from the PTP by each the tax year the decedent died. A gains and losses, and any prior year ratio in column (b) and enter the result in qualifying estate is treated as actively unallowed losses to see if you have an column (c) of Worksheet 4. Then complete participating for tax years ending less than overall gain or loss from the PTP. Include Worksheet 5 if all the loss from the same 2 years after the date of the decedent’s only the same types of income and losses activity is to be reported on one form or death. you would include in figuring your net schedule. Use Worksheet 6 instead of The maximum special allowance that income or loss from a non-PTP passive Worksheet 5 if you have more than one single individuals and married individuals activity. Get Pub. 925, Passive Activity and loss to be reported on different forms or filing a joint return can qualify for is At-Risk Rules, for more details. schedules for the same activity. Enter the $25,000. The maximum is $12,500 for net loss plus any prior year unallowed married individuals who file separate 2. If you have an overall gain, the net losses in column (a) of Worksheet 5 (or gain portion (total gain minus total losses) returns and who lived apart all times during Worksheet 6 if applicable). The losses in the year. The maximum special allowance is nonpassive income. On the form or column (c) of Worksheet 5 (column (e) of schedule you normally use, report the net for which an estate can qualify is $25,000 Worksheet 6) are the allowed losses to reduced by the special allowance for which gain portion as nonpassive income and the report on the forms or schedules. Report remaining income and the total losses as the surviving spouse qualifies. both these losses and any income from the passive income and loss. To the left of the PTP on the forms and schedules you If your modified adjusted gross income entry space, write “From PTP.” It is normally use. (defined below) is $100,000 or less important to identify the nonpassive ($50,000 or less if married filing income because the nonpassive portion is 4. If you have an overall loss and you separately), your loss is deductible up to included in modified adjusted gross disposed of your entire interest in the PTP the amount of the maximum special income for purposes of figuring on Form to an unrelated person in a fully taxable allowance referred to in the preceding 8582 the “special allowance” for active transaction during the year, your losses paragraph. If your modified adjusted gross participation in a non-PTP rental real (including prior year unallowed losses) income is more than $100,000 (more than estate activity. In addition, the nonpassive allocable to the activity for the year are not $50,000 if married filing separately), the income is included in investment income limited by the passive loss rules. A fully special allowance is limited to 50% of the when figuring your investment interest taxable transaction is one in which you difference between $150,000 ($75,000 if expense deduction on Form 4952. recognize all your realized gain or loss. married filing separately) and your modified Report the income and losses on the forms adjusted gross income. When modified Example. If you have Schedule E and schedules you normally use. income of $8,000, and a Form 4797 prior adjusted gross income is $150,000 or more year unallowed loss of $3,500 from the Note: For rules on the disposition of an ($75,000 or more if married filing passive activities of a particular PTP, you entire interest reported using the separately), there is no special allowance. have a $4,500 overall gain ($8,000–$3,500). installment method, see the Instructions for Modified adjusted gross income is your On Schedule E, Part II, report the $4,500 Form 8582. adjusted gross income figured without net gain as nonpassive income in column Active participation in a rental real taking into account any passive activity (k). In column (h), report the remaining estate activity.—If you actively loss, any rental real estate loss allowed Schedule E gain of $3,500 ($8,000– participated in a rental real estate activity, under section 469(c)(7) to real estate $4,500). On the appropriate line of Form you may be able to deduct up to $25,000 professionals (as defined on page 3), any 4797, report the prior year unallowed loss of the loss from the activity from taxable social security or equivalent of $3,500. Be sure to write “From PTP” to nonpassive income. This “special railroad retirement benefits, any deductible the left of each entry space. allowance” is an exception to the general contributions to an IRA or certain other 3. If you have an overall loss (but did not rule disallowing losses in excess of income qualified retirement plans under section dispose of your entire interest in the PTP from passive activities. The special 219, the deduction allowed under section to an unrelated person in a fully taxable allowance is not available if you were 164(f) for one-half of self-employment transaction during the year), the losses are married, file a separate return for the year, taxes, or the exclusion from income of allowed to the extent of the income, and and did not live apart from your spouse at interest from Series EE U.S. Savings the excess loss is carried forward to use in all times during the year. Bonds used to pay higher education a future year when you have income to Only individuals and qualifying estates expenses. offset it. Report as a passive loss on the can actively participate in a rental real Special rules for certain other schedule or form you normally use the estate activity. Estates (other than activities.— If you have net income (loss), portion of the loss equal to the income. qualifying estates), trusts, and corporations deductions, or credits from any activity to Report the income as passive income on cannot actively participate. Limited which special rules apply, the partnership the form or schedule you normally use. partners cannot actively participate unless will identify the activity and all amounts Example. You have a Schedule E loss of future regulations provide an exception. relating to it on Schedule K-1 or on an $12,000 (current year losses plus prior year You are not considered to actively attachment. unallowed losses) and a Form 4797 gain of participate in a rental real estate activity if If you have net income subject to $7,200. Report the $7,200 gain on the at any time during the tax year your recharacterization under Temporary appropriate line of Form 4797. On interest (including your spouse’s interest) in Regulations section 1.469-2T(f) and Schedule E, Part II, report $7,200 of the Regulations section 1.469-2(f), report such Page 4 amounts according to the Instructions for financing is commercially reasonable and The line numbers in column (c) are Form 8582 (or Form 8810). on substantially the same terms as loans references to forms in use for calendar If you have net income (loss), involving unrelated persons), the seller of year 1995. If you file your tax return on a deductions, or credits from any of the the property, or a person who receives a calendar year basis, but your partnership following activities, treat such amounts as fee for the partnership’s investment in the files a return for a fiscal year, enter the nonpassive and report them as instructed real property. See Pub. 925 for more amounts shown in column (b) on your tax in column (c) of Schedule K-1 or in these information on qualified nonrecourse return for the year in which the instructions: financing. partnership’s fiscal year ends. For Both the partnership and you must meet example, if the partnership’s tax year ends 1. Working interests in oil and gas wells in February 1996, report the amounts in if you are a general partner. the qualified nonrecourse rules on this debt before you can include the amount shown column (b) on your 1996 tax return. 2. The rental of a dwelling unit any next to “Qualified nonrecourse financing” If you have losses, deductions, or credits partner used for personal purposes during in your at-risk computation. from a prior year that were not deductible the year for more than the greater of 14 or usable because of certain limitations, days or 10% of the number of days that See Limitations on Losses, Deductions, and Credits beginning on such as the basis rules or the at-risk the residence was rented at fair rental limitations, take them into account in value. page 2 for more information on the at-risk limitations. determining your net income, loss, or 3. Trading personal property for the credits for this year. However, except for account of owners of interests in the Item G passive activity losses and credits, do not activity. combine the prior-year amounts with any If the partnership is a registration-required amounts shown on this Schedule K-1 to tax shelter or has invested in a get a net figure to report on any supporting Specific Instructions registration-required tax shelter, it should schedules, statements, or forms attached have completed Item G. If you claim or to your return. Instead, report the amounts General Information and report any income, loss, deduction, or on the attached schedule, statement, or credit from a tax shelter, you must attach form on a year-by-year basis. Questions Form 8271 to your tax return. If the partnership has invested in a tax shelter, it If you have amounts other than those Item F must give you a copy of its Form 8271 shown on Schedule K-1 to report on Item F should show your share of the with your Schedule K-1. Use the Schedule E (Form 1040), enter each item partnership’s nonrecourse liabilities, information on this Form 8271 to complete on a separate line of Part II of Schedule E. partnership-level qualified nonrecourse your Form 8271. financing, and other liabilities as of the end If the partnership itself is a Income of the partnership’s tax year. If you registration-required tax shelter, use the terminated your interest in the partnership information on Schedule K-1 (name of the Line 1—Ordinary Income (Loss) during the tax year, Item F should show partnership, partnership identifying From Trade or Business Activities the share that existed immediately before number, and tax shelter registration the total disposition. A partner’s “other The amount reported for line 1 is your number) to complete your Form 8271. share of the ordinary income (loss) from liability” is any partnership liability for the trade or business activities of the which a partner is personally liable. Item H partnership. Generally, where you report Use the total of the three amounts for If the box in Item H is checked, you are a this amount on Form 1040 depends on computing the adjusted basis of your partner in a publicly traded partnership and whether the amount is from an activity that partnership interest. must follow the rules discussed on pages is a passive activity to you. If you are an Generally, you may use only the 3 and 4 under Publicly traded individual partner filing your 1995 Form amounts shown next to “Qualified partnerships. 1040, find your situation below and report nonrecourse financing” and “Other” to your line 1 income (loss) as instructed, compute your amount at risk. Do not Lines 1 through 25 after applying the basis and at-risk include any amounts that are not at risk if limitations on losses: such amounts are included in either of The amounts shown on lines 1 through 25 1. Report line 1 income (loss) from these categories. reflect your share of income, loss, credits, partnership trade or business activities in If your partnership is engaged in two or deductions, etc., from partnership business which you materially participated on more different types of activities subject to or rental activities without reference to Schedule E (Form 1040), Part II, column (i) the at-risk provisions, or a combination of limitations on losses or adjustments that or (k). at-risk activities and any other activity, the may be required of you because of: 2. Report line 1 income (loss) from partnership should give you a statement 1. The adjusted basis of your partnership partnership trade or business activities in showing your share of nonrecourse interest, which you did not materially participate, as liabilities, partnership-level qualified 2. The amount for which you are at risk, follows: nonrecourse financing, and other liabilities or for each activity. a. If income is reported on line 1, report 3. The passive activity limitations. For the income on Schedule E, Part II, column Qualified nonrecourse financing information on these provisions, see (h). However, if the box in Item H is secured by real property used in an activity Limitations on Losses, Deductions, and checked, report the income following the of holding real property that is subject to Credits beginning on page 2. rules for Publicly traded partnerships on the at-risk rules is treated as an amount at pages 3 and 4. If you are an individual and the passive risk. Qualified nonrecourse financing activity rules do not apply to the amounts b. If a loss is reported on line 1, follow generally includes financing for which no shown on your Schedule K-1, take the the Instructions for Form 8582, to one is personally liable for repayment that amounts shown in column (b) and enter determine how much of the loss can be is borrowed for use in an activity of holding them on the lines on your tax return as reported on Schedule E, Part II, column (g). real property and that is loaned or indicated in column (c). If the passive However, if the box in Item H is checked, guaranteed by a Federal, state, or local activity rules do apply, report the amounts report the loss following the rules for government or borrowed from a “qualified” shown in column (b) as indicated in the line Publicly traded partnerships on pages 3 person. Qualified persons include any instructions below. and 4. persons actively and regularly engaged in the business of lending money, such as a If you are not an individual, report the bank or savings and loan association. amounts in column (b) as instructed on Qualified persons generally do not include your tax return. related parties (unless the nonrecourse Page 5 Line 2—Net Income (Loss) From 1. If line 3 is a loss, report the loss Sales of Business Property. You do not following the Instructions for Form 8582. have to complete the information called for Rental Real Estate Activities However, if the box in Item H is checked, in columns (b) through (f). Write “From Generally, the income (loss) reported on report the loss following the rules for Schedule K-1 (Form 1065)” across these line 2 is a passive activity amount for all Publicly traded partnerships on pages 3 columns. partners. However, the income (loss) on and 4. ● If gain from a passive activity is reported line 2 is not from a passive activity if you 2. If income is reported on line 3, report on line 6, report the gain on line 2, column were a real estate professional (defined on the income on Schedule E (Form 1040), (h), of Form 4797. page 3) and you materially participated in Part II, column (h). However, if the box in the activity. ● If a loss from a passive activity is Item H is checked, report the income reported on line 6, see Passive loss If you are filing a 1995 Form 1040, use following the rules for Publicly traded limitations in the Instructions for Form the following instructions to determine partnerships on pages 3 and 4. 4797. You will need to report the loss where to enter a line 2 amount: following the Instructions for Form 8582 to 1. If you have a loss from a passive Line 4—Portfolio Income (Loss) determine how much of the loss is allowed activity on line 2 and you meet all of the Portfolio income or loss is not subject to on Form 4797. However, if the box in Item following conditions, enter the loss on the passive activity limitations. Portfolio H is checked, report the loss following the Schedule E (Form 1040), Part II, column income includes income not derived in the rules for Publicly traded partnerships on (g): ordinary course of a trade or business from pages 3 and 4. a. You actively participated in the interest, dividends, annuities, or royalties partnership rental real estate activities. and gain or loss on the sale of property Line 7—Other Income (Loss) (See Active participation in a rental real that produces these types of income or is Amounts on this line are other items of estate activity on page 4.) held for investment. Column (c) of income, gain, or loss not included on lines Schedule K-1 tells individual partners 1 through 6. The partnership should give b. Rental real estate activities with active where to report this income on Form 1040. participation were your only passive you a description and the amount of your activities. The partnership uses line 4f to report share for each of these items. portfolio income other than interest, Report loss items that are passive c. You have no prior year unallowed dividend, royalty, and capital gain (loss) losses from these activities. activity amounts to you following the income. It will attach a statement to tell Instructions for Form 8582. However, if the d. Your total loss from the rental real you what kind of portfolio income is box in Item H is checked, report the loss estate activities was not more than reported on line 4f. following the rules for Publicly traded $25,000 (not more than $12,500 if married If the partnership has a residual interest partnerships on pages 3 and 4. filing separately and you lived apart from in a real estate mortgage investment your spouse all year). Report income or gain items that are conduit (REMIC), it will report on the passive activity amounts to you as e. If you are a married person filing statement your share of REMIC taxable instructed below. separately, you lived apart from your income (net loss) that you report on spouse all year. Schedule E (Form 1040), Part IV, column The instructions given below tell you (d). The statement will also report your where to report line 7 items if such items f. You have no current or prior year are not passive activity amounts. unallowed credits from a passive activity. share of any “excess inclusion” that you report on Schedule E, Part IV, column (c), Line 7 items may include the following: g. Your modified adjusted gross income was not more than $100,000 (not more and your share of section 212 expenses ● Partnership gains from the disposition of than $50,000 if married filing separately that you report on Schedule E, Part IV, farm recapture property (see Form 4797) and you lived apart from your spouse all column (e). If you itemize your deductions and other items to which section 1252 year). on Schedule A (Form 1040), you may also applies. deduct these section 212 expenses as a h. Your interest in the rental real estate ● Income from recoveries of tax benefit miscellaneous deduction subject to the 2% activity is not held as a limited partner. items. A tax benefit item is an amount you adjusted gross income floor on Schedule deducted in a prior tax year that reduced 2. If you have a loss from a passive A, line 22. your income tax. Report this amount on activity on line 2 and you do not meet all line 21 of Form 1040 to the extent it the conditions in 1 above, report the loss Line 5—Guaranteed Payments to reduced your tax. following the Instructions for Form 8582 to Partners determine how much of the loss you can ● Gambling gains and losses. report on Schedule E (Form 1040), Part II, Generally, amounts on this line are not 1. If the partnership was not engaged in column (g). However, if the box in Item H passive income, and you should report the trade or business of gambling, is checked, report the loss following the them on Schedule E (Form 1040), Part II, (a) report gambling winnings on Form rules for Publicly traded partnerships on column (k) (e.g., guaranteed payments for 1040, line 21, and (b) deduct gambling pages 3 and 4. personal services). losses to the extent of winnings on 3. If you were a real estate professional Line 6—Net Gain (Loss) Under Schedule A, line 27. and you materially participated in the Section 1231 (Other Than Due to 2. If the partnership was engaged in the activity, report line 2 income (loss) on trade or business of gambling, Schedule E (Form 1040), Part II, column (i) Casualty or Theft) (a) report gambling winnings in Part II of or (k). If the amount on line 6 is from a rental Schedule E, and (b) deduct gambling 4. If you have income from a passive activity, the section 1231 gain (loss) is losses to the extent of winnings in Part II activity on line 2, enter the income on generally a passive activity amount. of Schedule E. Schedule E, Part II, column (h). However, if Likewise, if the amount is from a trade or ● Any income, gain, or loss to the the box in Item H is checked, report the business activity and you did not materially partnership under section 751(b). Report income following the rules for Publicly participate in the activity, the section 1231 this amount on Form 4797, line 11. traded partnerships on pages 3 and 4. gain (loss) is a passive activity amount. ● Specially allocated ordinary gain (loss). However, an amount on line 6 from a Report this amount on Form 4797, Line 3—Net Income (Loss) From rental real estate activity is not from a line 11. Other Rental Activities passive activity if you were a real estate professional (defined on page 3) and you ● Net gain (loss) from involuntary The amount on line 3 is a passive activity materially participated in the activity. conversions due to casualty or theft. The amount for all partners. Report the income partnership will give you a schedule that or loss as follows: ● If the amount is not from a passive shows the amounts to be entered on Form activity, report it on line 2, column (g) or 4684, Casualties and Thefts, line 34, (h), whichever is applicable, of Form 4797, columns (b)(i), (b)(ii), and (c). Page 6 ● Net short-term capital gain or loss and investment interest expense and section reportable as described below; otherwise, net long-term capital gain or loss from 212 expenses from a REMIC). Generally, it is trade or business interest. Schedule D (Form 1065) that is not you should enter line 10 amounts on The partnership should give you a portfolio income (e.g., gain or loss from the Schedule A (Form 1040), line 22. See the description and the amount of your share disposition of nondepreciable personal Instructions for Schedule A, lines 22 and for each of these items. property used in a trade or business 27, for more information. However, enter activity of the partnership). Report a net deductions allocable to royalties on short-term capital gain or loss on Schedule Schedule E (Form 1040), line 18. For the Investment Interest D (Form 1040), line 5, column (f) or (g), and type of expense, write “From Schedule K-1 If the partnership paid or accrued interest a net long-term capital gain or loss on (Form 1065).” on debts properly allocable to investment Schedule D (Form 1040), line 13, column (f) These deductions are not taken into property, the amount of interest you are or (g). account in figuring your passive activity allowed to deduct may be limited. ● Any net gain or loss from section 1256 loss for the year. Do not enter them on For more information and the special contracts. Report this amount on line 1 of Form 8582. provisions that apply to investment interest Form 6781, Gains and Losses From expense, get Form 4952, Investment Section 1256 Contracts and Straddles. Line 11—Other Deductions Interest Expense Deduction, and Pub. 550, Amounts on this line are deductions not Investment Income and Expenses. Deductions included on lines 8, 9, 10, 17e, and 18b, such as: Line 12a—Interest Expense on Line 8—Charitable Contributions ● Itemized deductions (Form 1040 filers Investment Debts The partnership will give you a schedule enter on Schedule A (Form 1040)). Enter this amount on Form 4952, line 1, that shows the amount of contributions Note: If there was a gain (loss) from a along with your investment interest subject to the 50%, 30%, and 20% casualty or theft to property not used in a expense from Schedule K-1, line 11, if any, limitations. For more details, see the Form trade or business or for income-producing and from other sources to determine how 1040 instructions. purposes, the partnership will notify you. much of your total investment interest is If property other than cash is contributed You will have to complete your own Form deductible. and if the claimed deduction for one item 4684. or group of similar items of property Lines 12b(1) and (2)—Investment ● Any penalty on early withdrawal of exceeds $5,000, the partnership must give savings. Income and Investment Expenses you a copy of Form 8283, Noncash ● Soil and water conservation Use the amounts on these lines to Charitable Contributions, to attach to your expenditures. See section 175 for determine the amounts to enter in Part II of tax return. Do not deduct the amount limitations on the amount you are allowed Form 4952. shown on this form. It is the partnership’s to deduct. Caution: The amounts shown on lines contribution. Instead, deduct the amount shown on line 8 of your Schedule K-1 ● Expenditures for the removal of 12b(1) and (2) include only investment (Form 1065). architectural and transportation barriers to income and expenses included on lines 4a, the elderly and disabled that the 4b, 4c, 4f, and 10 of this Schedule K-1. If the partnership provides you with partnership elected to treat as a current The partnership should attach a schedule information that the contribution was expense. The deductions are limited by that shows the amount of any investment property other than cash and does not give section 190(c) to $15,000 per year from all income and expenses included on any you a Form 8283, see the Instructions for sources. other lines of this Schedule K-1. Be sure to Form 8283 for filing requirements. Do not ● Any amounts paid during the tax year for take these amounts into account, along file Form 8283 unless the total claimed insurance that constitutes medical care for with the amounts on lines 12b(1) and deduction for all contributed items of you, your spouse, and your dependents. 12b(2) and your investment income and property exceeds $500. On line 26 of Form 1040, you may be expenses from other sources, when Charitable contribution deductions are figuring the amounts to enter in Part II of allowed to deduct up to 30% of such not taken into account in figuring your Form 4952. amounts, even if you do not itemize passive activity loss for the year. Do not deductions. If you do itemize deductions, enter them on Form 8582. enter on line 1 of Schedule A (Form 1040) Credits Line 9—Section 179 Expense any amounts not deducted on line 26 of Form 1040. Caution: If you have credits that are Deduction passive activity credits to you, you must ● Payments made on your behalf to an complete Form 8582-CR (or Form 8810 for Use this amount, along with the total cost IRA, Keogh, or a simplified employee corporations) in addition to the credit forms of section 179 property placed in service pension (SEP) plan. See Form 1040 referenced below. See the Instructions for during the year from other sources, to instructions for lines 23a and 23b to figure Form 8582-CR (or Form 8810) for more complete Part I of Form 4562, your IRA deduction. Enter payments made information. Depreciation and Amortization. Use Part I to a Keogh or SEP plan on Form 1040, line of Form 4562 to figure your allowable 27. If the payments to a Keogh plan were Also, if you are entitled to claim more section 179 expense deduction from all to a defined benefit plan, the partnership than one general business credit (e.g., sources. Report the amount on line 12 of should give you a statement showing the investment credit, jobs credit, credit for Form 4562 allocable to a passive activity amount of the benefit accrued for the tax alcohol used as fuel, research credit, from the partnership following the year. low-income housing credit, enhanced oil Instructions for Form 8582. However, if the recovery credit, disabled access credit, ● Interest expense allocated to renewable electricity production credit, box in Item H is checked, report this debt-financed distributions. The manner in amount following the rules for Publicly Indian employment credit, credit for which you report such interest expense employer social security and Medicare traded partnerships on pages 3 and 4. If depends on your use of the distributed the amount is not a passive activity taxes paid on certain employee tips, and debt proceeds. See Notice 89-35, 1989-1 credit for contributions to selected deduction, report it on Schedule E (Form C.B. 675, for details. 1040), Part II, column (j). community development corporations), you ● Interest paid or accrued on debt properly must complete Form 3800, General Line 10—Deductions Related to allocable to your share of a working Business Credit, in addition to the credit Portfolio Income interest in any oil or gas property (if your forms referenced below. If you have more liability is not limited). If you did not than one credit, see the instructions for Amounts entered on this line are materially participate in the oil or gas Form 3800 for more information. deductions that are clearly and directly activity, this interest is investment interest allocable to portfolio income (other than Page 7 Line 13a—Low-Income Housing ● Credit for backup withholding on Self-Employment dividends, interest income, and other types Credit of income. Include the amount the If you and your spouse are both partners, Your share of the partnership’s low-income partnership reports to you in the total that each of you must complete and file your housing credit is shown on line 13a. Any you enter on Form 1040, line 55. Be sure own Schedule SE (Form 1040), allowable credit is entered on Form 8586, to check the box on line 55 and write Self-Employment Tax, to report your Low-Income Housing Credit. “From Schedule K-1.” partnership net earnings (loss) from self-employment. The partnership will report separately on ● Credit for increasing research activities line 13a(1) that portion of the low-income (Form 6765). Line 15a—Net Earnings (Loss) housing credit for property placed in ● Jobs credit (Form 5884). See Form 5884 service before 1990 to which section From Self-Employment for definitions, special rules, and 42(j)(5) applies. All other low-income limitations. If you are a general partner, reduce this housing credits for property placed in amount before entering it on Schedule SE service before 1990 will be reported on line ● Credit for alcohol used as fuel (Form 6478). (Form 1040) by any section 179 expense 13a(2). Line 13a(3) will report the deduction claimed, unreimbursed low-income housing credit for property ● Disabled access credit (Form 8826). partnership expenses claimed, and placed in service after 1989 to which ● Enhanced oil recovery credit (Form depletion claimed on oil and gas section 42(j)(5) applies. All other 8830). properties. Do not reduce net earnings low-income housing credits for property from self-employment by any separately ● Qualified electric vehicle credit (Form placed in service after 1989 will be stated deduction for health insurance 8834). reported on line 13a(4). expenses. ● Renewable electricity production credit Keep a separate record of the amount of If the amount on this line is a loss, enter (Form 8835). low-income housing credit from each of only the deductible amount on Schedule these sources so that you will be able to ● Empowerment zone employment credit SE (Form 1040). See Limitations on correctly compute any recapture of (Form 8844). Losses, Deductions, and Credits low-income housing credit that may result ● Indian employment credit (Form 8845). beginning on page 2. from the disposition of all or part of your ● Credit for employer social security and If your partnership is an options dealer partnership interest. For more information, Medicare taxes paid on certain employee or a commodities dealer, see section see the Instructions for Form 8586. tips (Form 8846). 1402(i). Line 13b—Qualified Rehabilitation ● Credit for contributions to selected If your partnership is an investment club, community development corporations see Rev. Rul. 75-525, 1975-2 C.B. 350. Expenditures Related to Rental (Form 8847). Real Estate Activities The passive activity limitations may limit Line 15b—Gross Farming or The partnership should identify your share the amount of credits on lines 13a, 13b, Fishing Income of the partnership’s rehabilitation 13c, 13d, and 14 (other than the credit for If you are an individual partner, enter the expenditures from each rental real estate backup withholding) that you may take. amount from this line, as an item of activity. Enter the expenditures on the Lines 13a, 13b, 13c, and 13d credits are information, on Schedule E (Form 1040), appropriate line of Form 3468, Investment related to the rental activities of the Part V, line 41. Also use this amount to Credit, to figure your allowable credit. partnership and are generally passive figure net earnings from self-employment activity credits to all partners. However, under the farm optional method on Line 13c—Credits (Other Than amounts on lines 13a, 13b, and 13c are Schedule SE (Form 1040), Section B, Part Credits Shown on Lines 13a and not passive activity credits if you were a II. 13b) Related to Rental Real Estate real estate professional (defined on page 3) and you materially participated in the Line 15c—Gross Nonfarm Income Activities activity. Line 14 credits (other than the credit for backup withholding) are related If you are an individual partner, use this The partnership will identify the type of to the trade or business activities of the amount to figure net earnings from credit and any other information you need partnership and are passive activity credits self-employment under the nonfarm to compute credits from rental real estate to all partners who did not materially optional method on Schedule SE (Form activities (other than the low-income participate in the trade or business activity. 1040), Section B, Part II. housing credit and qualified rehabilitation expenditures). In general, credits from passive activities are limited to the tax attributable to Adjustments and Tax Line 13d—Credits Related to passive activities. Preference Items Other Rental Activities But if you actively participated in a rental real estate activity, you may be able to use Use the information reported on lines 16a The partnership will identify the type of passive activity credits on line 13c against through 16e (as well as your adjustments credit and any other information you need tax on other income. The amount of these and tax preference items from other to compute credits from rental activities credits you can use is limited to their sources) to prepare your Form 6251, other than rental real estate activities. deduction equivalent up to $25,000 (net of Alternative Minimum Tax—Individuals; losses from rental real estate activities Form 4626, Alternative Minimum Tax— Line 14—Other Credits Corporations; or Schedule I of Form 1041, deductible against up to $25,000 of other The partnership will identify the type of income). U.S. Income Tax Return for Estates and credit and any other information you need Trusts. You may also claim passive activity to compute credits other than on lines 13a credits on lines 13a and 13b against tax on through 13d. Expenditures qualifying for Lines 16d(1) and 16d(2)—Gross other income, subject to the same $25,000 the (a) rehabilitation credit from other than limitation, even if you did not actively Income From, and Deductions rental real estate activities, (b) energy participate in a rental real estate activity. Allocable to, Oil, Gas, and credit, or (c) reforestation credit will be Line 13d credits are limited to tax reported to you on line 25. Geothermal Properties attributable to passive activities. The Credits that may be reported on line $25,000 deduction equivalent does not The amounts reported on these lines 13c, 13d, or 14 (depending on the type of apply to line 13d and line 14 credits. include only the gross income from, and activity they relate to) include the following: deductions allocable to, oil, gas, and geothermal properties that are included on ● Nonconventional source fuel credit. line 1 of Schedule K-1. The partnership ● Unused credits from cooperatives. should have attached a schedule that Page 8 shows any income from or deductions basis of your interest in the partnership by appreciated property (other than those allocable to such properties that are this amount. securities) to the partnership and the fair included on lines 2 through 11 and line 25 market value of those securities exceeded of Schedule K-1. Use the amounts Line 20—Other Tax-Exempt the adjusted basis of your partnership reported on lines 16d(1) and 16d(2) and the Income interest immediately before the distribution amounts on the attached schedule to help (reduced by any cash received in the you determine the net amount to enter on Increase the adjusted basis of your interest distribution), you may have to recognize line 14f of Form 6251. in the partnership by the amount shown on gain on the appreciated property. See line 20, but do not include it in income on section 737 for details. Line 16e—Other Adjustments and your tax return. Tax Preference Items Line 23—Distributions of Property Line 21—Nondeductible Expenses Enter the information on the schedule Other Than Money The nondeductible expenses paid or attached by the partnership for line 16e on incurred by the partnership are not Line 23 shows the partnership’s adjusted the applicable lines of Form 6251. deductible on your tax return. Decrease basis of property other than money the adjusted basis of your interest in the immediately before the property was Foreign Taxes partnership by this amount. distributed to you. Decrease the adjusted basis of your interest in the partnership by Use the information on lines 17a through Line 22—Distributions of Money the amount of your basis in the distributed 17g and attached schedules to figure your property. Your basis in the distributed foreign tax credit. For more information, (Cash and Marketable Securities) property (other than in liquidation of your get Form 1116, Foreign Tax Credit Line 22 shows the distributions the interest) is the smaller of (a) the (Individual, Estate, Trust, or Nonresident partnership made to you of cash and partnership’s adjusted basis immediately Alien Individual), and the related certain marketable securities. The before the distribution, or (b) the adjusted instructions; Form 1118, Foreign Tax marketable securities are included at their basis of your partnership interest reduced Credit—Corporations, and the related fair market value on the date of distribution by any cash distributed in the same instructions; and Pub. 514, Foreign Tax (minus your share of the partnership’s gain transaction. If you received the property in Credit for Individuals. on the securities distributed to you). If the liquidation of your interest, your basis in amount shown on line 22 exceeds the the distributed property is equal to the Other adjusted basis of your partnership interest adjusted basis of your partnership interest immediately before the distribution, the reduced by any cash distributed in the Lines 18a and 18b—Section excess is treated as gain from the sale or same transaction. 59(e)(2) Expenditures exchange of your partnership interest. If you contributed appreciated property Generally, this gain is treated as gain from to the partnership within 5 years of a The partnership will show on line 18a the the sale of a capital asset and should be distribution of other property to you, and type of qualified expenditures to which an reported on the Schedule D for your return. the fair market value of the other property election under section 59(e) may apply. It However, the gain may be ordinary exceeded the adjusted basis of your will identify the amount of the expenditure income. For details, see Pub. 541. partnership interest immediately before the on line 18b. If there is more than one type The partnership will separately identify distribution (reduced by any cash received of expenditure, the amount of each type (a) the fair market value of the marketable in the distribution), you may have to will be listed on an attachment. Generally, securities when distributed (minus your recognize gain on the appreciated section 59(e) allows each partner to elect share of the gain on the securities property. See section 737 for details. to deduct certain expenses ratably over distributed to you) and (b) the the number of years in the applicable partnership’s adjusted basis of those Lines 24a and 24b—Recapture of period rather than deduct the full amount securities immediately before the in the current year. Under the election, you Low-Income Housing Credit distribution. Decrease the adjusted basis of may deduct circulation expenditures your interest in the partnership (but not A section 42(j)(5) partnership will report ratably over a 3-year period. Research and below zero) by the amount of cash recapture of a low-income housing credit experimental expenditures and mining distributed to you and the partnership’s on line 24a. All other partnerships will exploration and development costs qualify adjusted basis of the distributed securities. report recapture of a low-income housing for a writeoff period of 10 years. Intangible Advances or drawings of money or credit on line 24b. Keep a separate record drilling and development costs may be property against your distributive share are of recapture from each of these sources so deducted over a 60-month period, treated as current distributions made on that you will be able to correctly compute beginning with the month in which such the last day of the partnership’s tax year. any recapture of low-income housing credit costs were paid or incurred. If you make that may result from the disposition of all this election, these items are not treated as Your basis in the distributed marketable or part of your partnership interest. For adjustments or tax preference items for securities (other than in liquidation of your more information, get Form 8611, purposes of the alternative minimum tax. interest) is the smaller of (a) the Recapture of Low-Income Housing Credit. Make the election on Form 4562. partnership’s adjusted basis in the securities immediately before the Because each partner decides whether distribution increased by any gain Supplemental Information to make the election under section 59(e), recognized on the distribution of the the partnership cannot provide you with securities, or (b) the adjusted basis of your Line 25 the amount of the adjustment or tax partnership interest reduced by any cash Amounts shown on line 25 include: preference item related to the expenses distributed in the same transaction and listed on line 18b. You must decide both 1. Taxes paid on undistributed capital increased by any gain recognized on the gains by a regulated investment company. how to claim the expenses on your return distribution of the securities. If you and compute the resulting adjustment or Form 1040 filers enter your share of these received the securities in liquidation of your taxes on line 60, check the box for Form tax preference item. partnership interest, your basis in the 2439, and add the words “Form 1065.” marketable securities is equal to the Line 19—Tax-Exempt Interest adjusted basis of your partnership interest 2. Number of gallons of each fuel used Income reduced by any cash distributed in the during the tax year in a use qualifying for same transaction and increased by any the credit for taxes paid on fuels and the You must report on your return, as an item applicable credit per gallon. Also your of information, your share of the gain recognized on the distribution of the securities. share of the credit allowed for the tax-exempt interest received or accrued by purchase of qualified diesel-powered the partnership during the year. Individual If, within 5 years of a distribution to you highway vehicles. Use this information to partners should report this amount on of marketable securities, you contributed Form 1040, line 8b. Increase the adjusted Page 9 complete Form 4136, Credit for Federal installment method. If you are an 13. Your share of expenditures qualifying Tax Paid on Fuels. individual, report the interest on Form for the (a) rehabilitation credit from other 3. Your share of gross income from the 1040, line 54. Write “453(l)(3)” and the than rental real estate activities, (b) energy property, share of production for the tax amount of the interest on the dotted line to credit, or (c) reforestation credit. Enter the year, etc., needed to figure your depletion the left of line 54. expenditures on the appropriate line of deduction for oil and gas wells. The 9. Any information you need to compute Form 3468 to figure your allowable credit. partnership should also allocate to you a the interest due under section 453A(c) with 14. Investment credit properties subject share of the adjusted basis of each respect to certain installment sales. If you to recapture. Any information you need to partnership oil or gas property. See Pub. are an individual, report the interest on figure your recapture tax on Form 4255, 535 for how to figure your depletion Form 1040, line 54. Write “453A(c)” and Recapture of Investment Credit. See the deduction. the amount of the interest on the dotted Form 3468 on which you took the original 4. Recapture of the section 179 expense line to the left of line 54. credit for other information you need to deduction. If the recapture was caused by 10. Any information you need to complete Form 4255. a disposition of the property, include the compute the interest due or to be refunded You may also need Form 4255 if you amount on Form 4797, line 18. The under the look-back method of section disposed of more than one-third of your recapture amount will be limited to the 460(b)(2) on certain long-term contracts. interest in a partnership. amount you deducted in earlier years. Use Form 8697, Interest Computation 15. Any information you need to figure 5. Recapture of certain mining Under the Look-Back Method for your recapture of the qualified electric exploration expenditures (section 617). Completed Long-Term Contracts, to report vehicle credit. See Pub. 535 for details, any such interest. including how to figure the recapture. 6. Any information or statements you need to comply with requirements under 11. Any information you need relating to 16. Any information you need to figure section 6111 (regarding tax shelters) or interest expense that you are required to your recapture of the Indian employment section 6662(d)(2)(B)(ii) (regarding adequate capitalize under section 263A for credit. Generally, if the partnership disclosure of items that may cause an production expenditures. See Regulations terminated a qualified employee less than understatement of income tax on your sections 1.263A-8 through 1.263A-15 for 1 year after the date of initial employment, return). more information. any Indian employment credit allowed for a 7. Preproductive period farm expenses. 12. Any information you need to prior tax year by reason of wages paid or You may be eligible to elect to deduct compute unrelated business taxable incurred to that employee must be these expenses currently or capitalize them income under section 512(a)(1) (but recaptured. For details, see section 45A(d). under section 263A. Get Pub. 225, excluding any modifications required by 17. Any other information you may need Farmer’s Tax Guide, and Temporary paragraphs (8) through (15) of section to file your return not shown elsewhere on Regulations section 1.263A-4T(c). 512(b)) for a partner that is a tax-exempt Schedule K-1. organization. 8. Any information you need to compute The partnership should give you a the interest due under section 453(l)(3) with Note: A partner is required to notify the description and the amount of your share respect to the disposition of certain partnership of its tax-exempt status. for each of these items. timeshares and residential lots on the