Instructions for IRS Form 1065 Schedule K-1 "Partner's Share of Income, Deductions, Credits, Etc. (For Partner's Use Only)"

This document contains official instructions for IRS Form 1065 Schedule K-1, Partner's Share of Income, Deductions, Credits, Etc. (For Partner's Use Only) - a tax form released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury. An up-to-date fillable IRS Form 1065 Schedule K-1 is available for download through this link.

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Download Instructions for IRS Form 1065 Schedule K-1 "Partner's Share of Income, Deductions, Credits, Etc. (For Partner's Use Only)"

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2019
Department of the Treasury
Internal Revenue Service
Partner's Instructions for
Schedule K-1 (Form 1065)
Partner's Share of Income, Deductions, Credits, etc.
(For Partner's Use Only)
New line 22. This new line provides a
identifying number (social security number
Section references are to the Internal Revenue Code
unless otherwise noted.
checkbox for the partnership to indicate if it
(SSN), etc.). However, the partnership has
has more than one activity for passive
reported your complete identifying number to
Future Developments
activity purposes.
the IRS.
Changes on page 2.
Although the partnership generally isn't
For the latest information about
subject to income tax, you may be liable for
developments related to Schedule K-1 (Form
Boxes 11 and 16. Codes in boxes 11
tax on your share of the partnership income,
1065) and the Partner's Instructions for
and 16, that in 2018 were used for
whether or not distributed. Include your
Schedule K-1 (Form 1065), such as
information concerning global intangible
share on your tax return if a return is
legislation enacted after they were
low-taxed income (GILTI) under section
required. Use these instructions to help you
published, go to IRS.gov/Form1065.
951A, are reserved or repurposed.
report the items shown on Schedule K-1 on
Information concerning GILTI will be
your tax return.
What’s New
provided to affected partners in statements
attached to Schedules K-1 by the
The amount of loss and deduction you
Changes on page 1.
partnership.
may claim on your tax return may be less
than the amount reported on Schedule K-1. It
Item E. If the partner is a disregarded
Boxes 11 and 13. Code F in box 11 is
is the partner's responsibility to consider and
entity (DE), item E will contain the TIN of the
used to report a net increase to the partner's
apply any applicable limitations. See
beneficial owner, not the TIN that the DE
income resulting from section 743(b)
Limitations on Losses, Deductions, and
may have obtained for other purposes. Item
adjustments.
Credits, later, for more information.
F will contain the name and address of the
Code V in box 13 is used to report a net
beneficial owner. For your protection, this
decrease to the partner's income resulting
Inconsistent Treatment of
form may show only the last four digits of the
from section 743(b) adjustments.
Items
TIN in items E and H2, as noted under
Purpose of Schedule K-1, later. If the partner
Box 20. Codes Z, AA, AB, AC, AD.
If you are a partner in a partnership that has
is a DE, the TIN of the beneficial owner is
Code Z is section 199A information; code AA
not elected out of the centralized partnership
entered, not that of the DE partner.
is section 704(c) information; code AB is
audit regime enacted by the Bipartisan
section 751 gain (loss); code AC is section
Item F. This field contains the name and
Budget Act of 2015 (BBA), you must report
1(h)(5) gain (loss); and code AD is deemed
address of the person whose TIN is entered
the items shown on your Schedule K-1 (and
section 1250 unrecaptured gain.
in item E.
any attached statements) the same way that
the partnership treated the items on its
Reminders
Item H2. A new checkbox has been
return.
added to indicate if the partner is a DE
Qualified business income deduction. For
partner. If so, the TIN and name of the DE
If the treatment on your original or
tax years beginning after 2017, individuals
partner is entered in the spaces provided.
amended return is inconsistent with the
and certain estates and trusts may be
partnership's treatment, or if the partnership
Item J. A new checkbox has been
entitled to a deduction of up to 20% of their
was required to but has not filed a return, you
added to indicate if a decrease in the
qualified business income from a trade or
must file Form 8082, Notice of Inconsistent
partner's ownership percentages of profit,
business. For more information, see Code Z,
Treatment or Administrative Adjustment
loss, or capital is due in part or in whole to a
section 199A information, under Box 20,
Request (AAR), with your original or
sale or exchange of a portion or all of the
Other information, and Form 8995-A,
amended return to identify and explain any
partnership interest.
Qualified Business Income Deduction.
inconsistency (or to note that a partnership
Box 6c, Dividend equivalents, has been
return has not been filed).
Item K. A new checkbox has been
added to report section 871(m) income.
added to indicate if the partner's share of
If you are required to file Form 8082 but
liabilities includes liability amounts from
General Instructions
do not do so, you may be subject to the
lower-tier partnerships.
accuracy-related penalty. This penalty is in
Item N. This new item shows the
addition to any tax that results from making
Purpose of Schedule K-1
partner's beginning and ending share of net
your amount or treatment of the item
unrecognized section 704(c) gain or (loss).
The partnership uses Schedule K-1 to report
consistent with that shown on the
your share of the partnership's income,
partnership's return. Any deficiency that
Line 4, and page 2, line 4. Guaranteed
deductions, credits, etc. Keep it for your
results from making the amounts consistent
payments is now three lines: 4a Guaranteed
records. Do not file it with your tax return
may be assessed immediately.
payments for services, 4b Guaranteed
unless you are specifically required to do so.
payments for capital, 4c Total guaranteed
Errors
(See the instructions for Code O. Backup
payments.
withholding, later.) The partnership files a
If you believe the partnership has made an
copy of Schedule K-1 (Form 1065) with the
New line 21. This new line provides a
error on your Schedule K-1, notify the
IRS.
checkbox for the partnership to indicate if it
partnership and ask for a corrected
has more than one activity for at-risk
For your protection, Schedule K-1 may
Schedule K-1. Do not change any items on
purposes.
show only the last four digits of your
your copy of Schedule K-1. Be sure that the
Dec 24, 2019
Cat. No. 11396N
2019
Department of the Treasury
Internal Revenue Service
Partner's Instructions for
Schedule K-1 (Form 1065)
Partner's Share of Income, Deductions, Credits, etc.
(For Partner's Use Only)
New line 22. This new line provides a
identifying number (social security number
Section references are to the Internal Revenue Code
unless otherwise noted.
checkbox for the partnership to indicate if it
(SSN), etc.). However, the partnership has
has more than one activity for passive
reported your complete identifying number to
Future Developments
activity purposes.
the IRS.
Changes on page 2.
Although the partnership generally isn't
For the latest information about
subject to income tax, you may be liable for
developments related to Schedule K-1 (Form
Boxes 11 and 16. Codes in boxes 11
tax on your share of the partnership income,
1065) and the Partner's Instructions for
and 16, that in 2018 were used for
whether or not distributed. Include your
Schedule K-1 (Form 1065), such as
information concerning global intangible
share on your tax return if a return is
legislation enacted after they were
low-taxed income (GILTI) under section
required. Use these instructions to help you
published, go to IRS.gov/Form1065.
951A, are reserved or repurposed.
report the items shown on Schedule K-1 on
Information concerning GILTI will be
your tax return.
What’s New
provided to affected partners in statements
attached to Schedules K-1 by the
The amount of loss and deduction you
Changes on page 1.
partnership.
may claim on your tax return may be less
than the amount reported on Schedule K-1. It
Item E. If the partner is a disregarded
Boxes 11 and 13. Code F in box 11 is
is the partner's responsibility to consider and
entity (DE), item E will contain the TIN of the
used to report a net increase to the partner's
apply any applicable limitations. See
beneficial owner, not the TIN that the DE
income resulting from section 743(b)
Limitations on Losses, Deductions, and
may have obtained for other purposes. Item
adjustments.
Credits, later, for more information.
F will contain the name and address of the
Code V in box 13 is used to report a net
beneficial owner. For your protection, this
decrease to the partner's income resulting
Inconsistent Treatment of
form may show only the last four digits of the
from section 743(b) adjustments.
Items
TIN in items E and H2, as noted under
Purpose of Schedule K-1, later. If the partner
Box 20. Codes Z, AA, AB, AC, AD.
If you are a partner in a partnership that has
is a DE, the TIN of the beneficial owner is
Code Z is section 199A information; code AA
not elected out of the centralized partnership
entered, not that of the DE partner.
is section 704(c) information; code AB is
audit regime enacted by the Bipartisan
section 751 gain (loss); code AC is section
Item F. This field contains the name and
Budget Act of 2015 (BBA), you must report
1(h)(5) gain (loss); and code AD is deemed
address of the person whose TIN is entered
the items shown on your Schedule K-1 (and
section 1250 unrecaptured gain.
in item E.
any attached statements) the same way that
the partnership treated the items on its
Reminders
Item H2. A new checkbox has been
return.
added to indicate if the partner is a DE
Qualified business income deduction. For
partner. If so, the TIN and name of the DE
If the treatment on your original or
tax years beginning after 2017, individuals
partner is entered in the spaces provided.
amended return is inconsistent with the
and certain estates and trusts may be
partnership's treatment, or if the partnership
Item J. A new checkbox has been
entitled to a deduction of up to 20% of their
was required to but has not filed a return, you
added to indicate if a decrease in the
qualified business income from a trade or
must file Form 8082, Notice of Inconsistent
partner's ownership percentages of profit,
business. For more information, see Code Z,
Treatment or Administrative Adjustment
loss, or capital is due in part or in whole to a
section 199A information, under Box 20,
Request (AAR), with your original or
sale or exchange of a portion or all of the
Other information, and Form 8995-A,
amended return to identify and explain any
partnership interest.
Qualified Business Income Deduction.
inconsistency (or to note that a partnership
Box 6c, Dividend equivalents, has been
return has not been filed).
Item K. A new checkbox has been
added to report section 871(m) income.
added to indicate if the partner's share of
If you are required to file Form 8082 but
liabilities includes liability amounts from
General Instructions
do not do so, you may be subject to the
lower-tier partnerships.
accuracy-related penalty. This penalty is in
Item N. This new item shows the
addition to any tax that results from making
Purpose of Schedule K-1
partner's beginning and ending share of net
your amount or treatment of the item
unrecognized section 704(c) gain or (loss).
The partnership uses Schedule K-1 to report
consistent with that shown on the
your share of the partnership's income,
partnership's return. Any deficiency that
Line 4, and page 2, line 4. Guaranteed
deductions, credits, etc. Keep it for your
results from making the amounts consistent
payments is now three lines: 4a Guaranteed
records. Do not file it with your tax return
may be assessed immediately.
payments for services, 4b Guaranteed
unless you are specifically required to do so.
payments for capital, 4c Total guaranteed
Errors
(See the instructions for Code O. Backup
payments.
withholding, later.) The partnership files a
If you believe the partnership has made an
copy of Schedule K-1 (Form 1065) with the
New line 21. This new line provides a
error on your Schedule K-1, notify the
IRS.
checkbox for the partnership to indicate if it
partnership and ask for a corrected
has more than one activity for at-risk
For your protection, Schedule K-1 may
Schedule K-1. Do not change any items on
purposes.
show only the last four digits of your
your copy of Schedule K-1. Be sure that the
Dec 24, 2019
Cat. No. 11396N
partnership sends a copy of the corrected
other information required by Temporary
of time specified in that section). For details,
Schedule K-1 to the IRS.
Regulations section 1.6031(c)-1T. A
see the instructions for code J in box 13.
nominee that fails to furnish this statement
Section 108(b)(5) (election related to
Sale or Exchange of
must furnish to the person for whom the
reduction of tax attributes due to exclusion
nominee holds the partnership interest a
from gross income of discharge of
Partnership Interest
copy of Schedule K-1 and related
indebtedness).
Generally, a partner who sells or exchanges
information within 30 days of receiving it from
Section 263A(d) (preproductive
a partnership interest in a section 751(a)
the partnership.
expenses). See the instructions for code P in
exchange must notify the partnership, in
box 13.
A nominee who fails to furnish all the
writing, within 30 days of the exchange (or, if
Section 617 (deduction and recapture of
information required by Temporary
earlier, by January 15 of the calendar year
certain mining exploration expenditures).
Regulations section 1.6031(c)-1T when due,
following the calendar year in which the
Section 901 (foreign tax credit).
or who furnishes incorrect information, is
exchange occurred). A “section 751(a)
subject to a $270 penalty for each failure.
Additional Information
exchange” is any sale or exchange of a
The maximum penalty is $3,339,000 for all
partnership interest in which any money or
For more information on the treatment of
such failures during a calendar year. If the
other property received by the partner in
partnership income, deductions, credits, and
nominee intentionally disregards the
exchange for that partner's interest is
other items, see Pub. 535, Business
requirement to report correct information,
attributable to unrealized receivables (as
Expenses.
each $270 penalty increases to $550 or, if
defined in section 751(c)) or inventory items
greater, 10% of the aggregate amount of
(as defined in section 751(d)).
To get forms and publications, see the
items required to be reported, and there is no
instructions for your tax return or visit the IRS
The written notice to the partnership must
limit to the amount of the penalty.
website at IRS.gov.
include the names and addresses of both
parties to the exchange, the identifying
International Boycotts
Limitations on Losses,
numbers of the transferor and (if known) of
Every partnership that had operations in, or
Deductions, and Credits
the transferee, and the exchange date.
related to, a boycotting country, company, or
An exception to this rule is made for sales
There are potential limitations on partnership
a national of a boycotting country must file
or exchanges of publicly traded partnership
losses that you can deduct on your return.
Form 5713, International Boycott Report.
interests for which a broker is required to file
These limitations and the order in which you
Form 1099-B, Proceeds From Broker and
If the partnership cooperated with an
must apply them are as follows: the basis
Barter Exchange Transactions.
international boycott, it must give you a copy
limitations, the at-risk limitations, the passive
of its Form 5713. You must file your own
activity limitations, and the excess business
If a partner is required to notify the
Form 5713 to report the partnership's
loss limitations. These limitations are
partnership of a section 751(a) exchange but
activities and any other boycott operations
discussed below.
fails to do so, the partner will be subject to a
that you may have. You may lose certain tax
penalty for each such failure. However, no
Other limitations may apply to specific
benefits if the partnership participated in, or
penalty will be imposed if the partner can
deductions (for example, the section 179
cooperated with, an international boycott.
show that the failure was due to reasonable
expense deduction). Generally, specific
See Form 5713 and its instructions for more
cause and not willful neglect.
limitations apply before the at-risk and
information.
passive loss limitations.
Gain or loss from the disposition of
Definitions
your partnership interest may be net
Basis Limitations
TIP
investment income under section
Generally, you may not claim your share of a
General Partner
1411 and could be subject to the net
partnership loss (including a capital loss) to
investment income tax. See Form 8960, Net
A general partner is a partner who is
the extent that it is greater than the adjusted
Investment Income Tax—Individuals,
personally liable for partnership debts.
basis of your partnership interest at the end
Estates, and Trusts, and its instructions for
of the partnership's tax year. Any losses and
Limited Partner
information about how to report and figure
deductions not allowed this year because of
the tax due.
A limited partner is a partner in a partnership
the basis limit can be carried forward
formed under a state limited partnership law,
indefinitely and deducted in a later year
Three-year holding period
whose personal liability for partnership debts
subject to the basis limit for that year.
requirement for applicable
!
is limited to the amount of money or other
partnership interests. Section
The partnership isn't responsible for
property that the partner contributed or is
CAUTION
1061 increases the required long-term
keeping the information needed to figure the
required to contribute to the partnership.
capital gains holding period for an applicable
basis of your partnership interest. Although
Some members of other entities, such as
partnership interest from more than 1 year to
the partnership does provide an analysis of
domestic or foreign business trusts or limited
more than 3 years. The holding period
the changes to your capital account in item L
liability companies that are classified as
applies only to applicable partnership
of Schedule K-1, that information is based on
partnerships, may be treated as limited
interests held in connection with the
the partnership's books and records and
partners for certain purposes.
performance of services as defined in
cannot be used to figure your basis.
Nonrecourse Loans
section 1061. See section 1061 and Pub.
You can figure the adjusted basis of your
541 for details.
Nonrecourse loans are those liabilities of the
partnership interest by adding items that
partnership for which no partner or related
increase your basis and then subtracting
Nominee Reporting
person bears the economic risk of loss.
items that decrease your basis.
Any person who holds, directly or indirectly,
Elections
Use the Worksheet for Adjusting the
an interest in a partnership as a nominee for
Basis of a Partner’s Interest in the
another person must furnish a written
Generally, the partnership decides how to
Partnership to figure the basis of your
statement to the partnership by the last day
figure taxable income from its operations.
interest in the partnership.
of the month following the end of the
However, certain elections are made by you
partnership's tax year. This statement must
separately on your income tax return and not
For partnership tax years beginning after
include the name, address, and identifying
by the partnership. These elections are
2017, a partner's share of the adjusted basis
number of the nominee and such other
made under the following code sections.
in partnership charitable contributions
person, description of the partnership
Section 59(e) (deduction of certain
(defined in section 170(c)) and taxes,
interest held as nominee for that person, and
qualified expenditures ratably over the period
described in section 901, paid or accrued to
Partner's Inst. for Sch. K-1 (Form 1065) (2019)
-2-
foreign countries and to possessions of the
Worksheet for Adjusting the Basis of a
United States are subject to this basis
limitation (defined in section 704(d)).
Keep for Your Records
Partner's Interest in the Partnership
For more details on the basis limitations,
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.
and special rules for charitable contributions
and foreign taxes paid and accrued, see
Increases:
Pub. 541, Partnerships.
2. Money and your adjusted basis in property contributed to the partnership less
the associated liabilities (but not less than zero) . . . . . . . . . . . . . . . . . . . .
2.
At-Risk Limitations
3. Your increased share of or assumption of partnership liabilities. (Subtract your
share of liabilities shown in item K of your 2018 Schedule K-1 from your share of
Generally, if you have (a) a loss or other
liabilities shown in item K of your 2019 Schedule K-1 and add the amount of any
deduction from any activity carried on as a
partnership liabilities you assumed during the tax year (but not less than
zero)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
trade or business or for the production of
income by the partnership, and (b) amounts
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
in the activity for which you are not at risk,
holders of clean renewable energy bonds
. . . . . . . . . . . . . . . . . . . . . . .
4.
you will have to complete Form 6198,
5. Any gain recognized this year on contributions of property. Do not include gain
At-Risk Limitations, to figure your allowable
from transfer of liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
loss for the activity.
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.
The at-risk rules generally limit the
Decreases:
amount of loss and other deductions that you
can claim to the amount you could actually
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
lose in the activity. These losses and
distributions included in the partner's income (taxable income)
. . . . . . . . . .
7.
deductions include a loss on the disposition
Caution: A distribution may be taxable if the amount exceeds your adjusted
of assets and the section 179 expense
basis of your partnership interest immediately before the distribution.
deduction. However, if you acquired your
8. Your decreased share of partnership liabilities and any decrease in your
partnership interest before 1987, the at-risk
individual liabilities because they were assumed by the partnership. (Subtract
your share of liabilities shown in item K of your 2019 Schedule K-1 from your
rules do not apply to losses from an activity
share of liabilities shown in item K of your 2018 Schedule K-1 and add the
of holding real property placed in service
amount of your individual liabilities that the partnership assumed during the tax
year (but not less than zero))
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
before 1987 by the partnership. The activity
9. Your share of the partnership's nondeductible expenses that are not capital
of holding mineral property doesn't qualify for
expenditures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.
this exception. The partnership should
10. Your share of the partnership's losses and deductions (including capital losses).
identify on a statement attached to
However, include your share of the partnership's section 179 expense deduction
Schedule K-1 any losses that are not subject
for this year even if you cannot deduct all of it because of limitations . . . . . . .
10.
to the at-risk limitations.
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.
Generally, you are not at risk for amounts
such as the following.
12. Your adjusted basis in the partnership at the end of this tax year. (Add lines 1
through 6 and subtract lines 7 through 11 from the total. If zero or less,
Nonrecourse loans used to finance the
enter -0-.)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.
activity, to acquire property used in the
Caution: The deduction for your share of the partnership's losses and
activity, or to acquire your interest in the
deductions is limited to your adjusted basis in your partnership interest. If you
activity that are not secured by your own
entered zero on line 12 and the amount figured for line 12 was less than zero, a
portion of your share of the partnership losses and deductions may not be
property (other than the property used in the
deductible. (See
Basis
Limitations, earlier, for more information.)
activity). See the instructions for item K, later,
for the exception for qualified nonrecourse
financing secured by real property.
Have a passive activity loss or credit for
businesses in which you materially
Cash, property, or borrowed amounts
the tax year.
participated.
used in the activity (or contributed to the
For a closely held C corporation
activity, or used to acquire your interest in
Generally, passive activities include the
the activity) that are protected against loss
(defined in section 465(a)(1)(B)), the
following.
TIP
above conditions are treated as met
by a guarantee, stop-loss agreement, or
1. Trade or business activities in which
if more than 50% of the corporation's gross
other similar arrangement (excluding
you didn't materially participate.
receipts were from real property trades or
casualty insurance and insurance against
2. Activities that meet the definition of
businesses in which the corporation
tort liability).
rental activities under Temporary
materially participated.
Amounts borrowed for use in the activity
Regulations section 1.469-1T(e)(3) and
from a person who has an interest in the
For purposes of this rule, each interest in
Regulations section 1.469-1(e)(3).
activity, other than as a creditor, or who is
rental real estate is a separate activity,
related, under section 465(b)(3), to a person
Passive activities do not include the
unless you elect to treat all interests in rental
(other than you) having such an interest.
following.
real estate as one activity. For details on
1. Trade or business activities in which
making this election, see the Instructions for
You should get a separate statement of
income, expenses, and other items for each
you materially participated.
Schedule E (Form 1040 or 1040-SR),
activity from the partnership.
Supplemental Income and Loss.
2. Rental real estate activities in which
you materially participated if you were a real
If you are married filing jointly, either you
Note. Box 21 in Part III of Schedule K-1
estate professional for the tax year. You
or your spouse must separately meet both
(Form 1065) will be checked when a
were a real estate professional only if you
(a) and (b) of the above conditions, without
statement is attached.
met both of the following conditions.
taking into account services performed by
Passive Activity Limitations
the other spouse.
a. More than half of the personal
services you performed in trades or
A real property trade or business is any
Section 469 provides rules that limit the
businesses were performed in real property
real property development, redevelopment,
deduction of certain losses and credits.
trades or businesses in which you materially
construction, reconstruction, acquisition,
These rules apply to partners who:
participated.
conversion, rental, operation, management,
Are individuals, estates, trusts, closely
leasing, or brokerage trade or business.
held C corporations, or personal service
b. You performed more than 750 hours
Services you performed as an employee are
corporations; and
of services in real property trades or
Partner's Inst. for Sch. K-1 (Form 1065) (2019)
-3-
not treated as performed in a real property
3. You participated in the activity for
Effect of determination. Income (loss),
trade or business unless you owned more
more than 100 hours during the tax year, and
deductions, and credits from an activity are
than 5% of the stock (or more than 5% of the
your participation in the activity for the tax
nonpassive if you determine that:
capital or profits interest) in the employer.
year wasn't less than the participation in the
You materially participated in a trade or
activity of any other individual (including
business activity of the partnership, or
3. Working interests in oil or gas wells if
individuals who were not owners of interests
You were a real estate professional
you were a general partner.
in the activity) for the tax year.
(defined earlier) in a rental real estate activity
4. The rental of a dwelling unit any
of the partnership.
4. The activity was a significant
partner used for personal purposes during
participation activity for the tax year, and you
If you determine that you didn't materially
the year for more than the greater of 14 days
participated in all significant participation
participate in a trade or business activity of
or 10% of the number of days that the
activities (including activities outside the
the partnership or if you have income (loss),
residence was rented at fair rental value.
partnership) during the year for more than
deductions, or credits from a rental activity of
5. Activities of trading personal property
500 hours. A significant participation activity
the partnership (other than a rental real
for the account of owners of interests in the
is any trade or business activity in which you
estate activity in which you materially
activities.
participated for more than 100 hours during
participated as a real estate professional),
the year and in which you didn't materially
the amounts from that activity are passive.
If you are an individual, an estate, or a
participate under any of the material
Report passive income (losses), deductions,
trust, and you have a passive activity loss or
participation tests (other than this test).
and credits as follows.
credit, use Form 8582, Passive Activity Loss
Limitations, to figure your allowable passive
5. You materially participated in the
1. If you have an overall gain (the
losses and Form 8582-CR, Passive Activity
activity for any 5 tax years (whether or not
excess of income over deductions and
Credit Limitations, to figure your allowable
consecutive) during the 10 tax years that
losses, including any prior year unallowed
passive credits. For a corporation, use Form
immediately precede the tax year.
loss) from a passive activity, report the
8810, Corporate Passive Activity Loss and
income, deductions, and losses from the
6. The activity was a personal service
Credit Limitations. See the instructions for
activity as indicated in these instructions.
activity and you materially participated in the
these forms for details.
activity for any 3 tax years (whether or not
2. If you have an overall loss (the
consecutive) preceding the tax year. A
excess of deductions and losses, including
If the partnership had more than one
personal service activity involves the
any prior year unallowed loss, over income)
activity, it will attach a statement to your
performance of personal services in the
or credits from a passive activity, report the
Schedule K-1 that identifies each activity
fields of health, law, engineering,
income, deductions, losses, and credits from
(trade or business activity, rental real estate
architecture, accounting, actuarial science,
all passive activities using the Instructions for
activity, rental activity other than rental real
performing arts, consulting, or any other
Form 8582 or the Instructions for Form
estate, and other activity) and specifies the
trade or business in which capital isn't a
8582-CR (or Form 8810), to see if your
income (loss), deductions, and credits from
material income-producing factor.
deductions, losses, and credits are limited
each activity.
under the passive activity rules.
7. Based on all the facts and
Note. Box 22 in Part III of Schedule K-1
circumstances, you participated in the
Publicly traded partnerships (PTP). The
(Form 1065) will be checked when a
activity on a regular, continuous, and
passive activity limitations are applied
statement is attached.
substantial basis during the tax year.
separately for items (other than the
Material participation. You must
Limited partners. If you are a limited
low-income housing credit and the
determine if you materially participated (a) in
partner, you do not materially participate in
rehabilitation credit) from each PTP. Thus, a
each trade or business activity held through
an activity unless you meet one of the tests
net passive loss from a PTP may not be
the partnership, and (b) if you were a real
in paragraph 1, 5, or 6 above.
deducted from other passive income.
estate professional (defined earlier) in each
Instead, a passive loss from a PTP is
Work counted toward material
rental real estate activity held through the
suspended and carried forward to be applied
participation. Generally, any work that you
partnership. All determinations of material
against passive income from the same PTP
or your spouse does in connection with an
participation are based on your participation
in later years. If the partner's entire interest in
activity held through a partnership (where
during the partnership's tax year.
the PTP is completely disposed of, any
you own your partnership interest at the time
unused losses are allowed in full in the year
Material participation standards for
the work is done) is counted toward material
of disposition.
partners who are individuals are listed below.
participation. However, work in connection
Special rules apply to certain retired or
If you have an overall gain from a PTP,
with the activity isn't counted toward material
disabled farmers and to the surviving
the net gain is nonpassive income. In
participation if either of the following applies.
spouses of farmers. See the Instructions for
addition, the nonpassive income is included
1. The work isn't the type of work that
Form 8582 for details.
in investment income to figure your
owners of the activity would usually do and
investment interest expense deduction.
Corporations should refer to the
one of the principal purposes of the work that
Instructions for Form 8810 for the material
Do not report passive income, gains, or
you or your spouse does is to avoid the
participation standards that apply to them.
losses from a PTP on Form 8582. Instead,
passive loss or credit limitations.
use the following rules to figure and report on
Individuals (other than limited
2. You do the work in your capacity as
the proper form or schedule your income,
partners). If you are an individual (either a
an investor and you are not directly involved
gains, and losses from passive activities that
general partner or a limited partner who
in the day-to-day operations of the activity.
you held through each PTP you owned
owned a general partnership interest at all
Examples of work done as an investor that
during the tax year.
times during the tax year), you materially
would not count toward material participation
1. Combine any current year income,
participated in an activity only if one or more
include:
gains, and losses, and any prior year
of the following apply.
a. Studying and reviewing financial
unallowed losses to see if you have an
1. You participated in the activity for
statements or reports on operations of the
overall gain or loss from the PTP. Include
more than 500 hours during the tax year.
activity,
only the same types of income and losses
2. Your participation in the activity for
b. Preparing or compiling summaries or
you would include in your net income or loss
the tax year constituted substantially all the
analyses of the finances or operations of the
from a non-PTP passive activity. See Pub.
participation in the activity of all individuals
activity for your own use, and
925, Passive Activity and At-Risk Rules, for
(including individuals who are not owners of
more details.
c. Monitoring the finances or operations
interests in the activity).
of the activity in a non-managerial capacity.
Partner's Inst. for Sch. K-1 (Form 1065) (2019)
-4-
2. If you have an overall gain, the net
unallowed loss from the PTP by each ratio in
capital or repair expenditures, and other
gain portion (total gain minus total losses) is
column (b) and enter the result in column (c)
similar decisions.
nonpassive income. On the form or schedule
of Worksheet 5. Then, complete Worksheet
An estate is a qualifying estate if the
you normally use, report the net gain portion
6 if all the loss from the same activity is to be
decedent would have satisfied the active
as nonpassive income and the remaining
reported on one form or schedule. Use
participation requirement for the activity for
income and the total losses as passive
Worksheet 7 instead of Worksheet 6 if you
the tax year the decedent died. A qualifying
income and loss. To the left of the entry
have more than one loss to be reported on
estate is treated as actively participating for
space, enter “From PTP.” It is important to
different forms or schedules for the same
tax years ending less than 2 years after the
identify the nonpassive income because the
activity. Enter the net loss plus any prior year
date of the decedent's death.
nonpassive portion is included in modified
unallowed losses in column (a) of Worksheet
Modified adjusted gross income
adjusted gross income for purposes of
6 (or Worksheet 7, if applicable). The losses
limitation. The maximum special
figuring on Form 8582 the “special
in column (c) of Worksheet 6 (column (e) of
allowance that single individuals and married
allowance” for active participation in a
Worksheet 7) are the allowed losses to
individuals filing a joint return can qualify for
non-PTP rental real estate activity. In
report on the forms or schedules. Report
is $25,000. The maximum is $12,500 for
addition, the nonpassive income is included
both these losses and any income from the
married individuals who file separate returns
in investment income when figuring your
PTP on the forms and schedules you
and who lived apart at all times during the
investment interest expense deduction on
normally use.
year. The maximum special allowance for
Form 4952, Investment Interest Expense
4. If you have an overall loss and you
which an estate can qualify is $25,000
Deduction.
disposed of your entire interest in the PTP to
reduced by the special allowance for which
an unrelated person in a fully taxable
Example. If you have Schedule E (Form
the surviving spouse qualifies.
transaction during the year, your losses
1040 or 1040-SR) income of $8,000, and a
If your modified adjusted gross income
(including prior year unallowed losses)
Form 4797, Sales of Business Property, prior
(defined below) is $100,000 or less ($50,000
allocable to the activity for the year are not
year unallowed loss of $3,500 from the
or less if married filing separately), your loss
limited by the passive loss rules. A fully
passive activities of a particular PTP, you
is deductible up to the maximum special
taxable transaction is one in which you
have a $4,500 overall gain ($8,000 −
allowance referred to in the preceding
recognize all your realized gain or loss.
$3,500). On Schedule E (Form 1040 or
paragraph. If your modified adjusted gross
Report the income and losses on the forms
1040-SR), line 28, report the $4,500 net gain
income is more than $100,000 (more than
and schedules you normally use.
as nonpassive income in column (k). In
$50,000 if married filing separately), the
column (h), report the remaining Schedule E
For rules on the disposition of an
special allowance is limited to 50% of the
(Form 1040 or 1040-SR) gain of $3,500
difference between $150,000 ($75,000 if
entire interest reported using the
TIP
($8,000 − $4,500). On the appropriate line of
installment method, see the
married filing separately) and your modified
Form 4797, report the prior year unallowed
Instructions for Form 8582.
adjusted gross income. When modified
loss of $3,500. Be sure to enter “From PTP”
adjusted gross income is $150,000 or more
to the left of each entry space.
($75,000 or more if married filing separately),
Special allowance for a rental real estate
3. If you have an overall loss (but didn't
there is no special allowance.
activity. If you actively participated in a
dispose of your entire interest in the PTP to
Modified adjusted gross income is your
rental real estate activity, you may be able to
an unrelated person in a fully taxable
adjusted gross income figured without taking
deduct up to $25,000 of the loss from the
transaction during the year), the losses are
into account the following amounts, if
activity from nonpassive income. This
allowed to the extent of the income, and the
applicable.
“special allowance” is an exception to the
excess loss is carried forward to use in a
Any passive activity loss.
general rule disallowing losses in excess of
future year when you have income to offset
Any rental real estate loss allowed under
income from passive activities. The special
it. Report as a passive loss on the schedule
section 469(c)(7) to real estate professionals
allowance isn't available if you were married,
or form you normally use the portion of the
(defined earlier).
file a separate return for the year, and didn't
loss equal to the income. Report the income
Any overall loss from a PTP.
live apart from your spouse at all times
as passive income on the form or schedule
Any taxable social security or equivalent
during the year.
you normally use.
railroad retirement benefits.
Only individuals, qualifying estates, and
Any deductible contributions to an IRA or
qualifying revocable trusts that made a
Example. You have a Schedule E (Form
certain other qualified retirement plans under
section 645 election can actively participate
1040 or 1040-SR) loss of $12,000 (current
section 219.
in a rental real estate activity. Estates (other
year losses plus prior year unallowed losses)
The domestic production activities
than qualifying estates), trusts (other than
and a Form 4797 gain of $7,200. Report the
deduction.
qualifying revocable trusts that made a
$7,200 gain on the appropriate line of Form
The student loan interest deduction.
section 645 election), and corporations
4797. On Schedule E (Form 1040 or
The tuition and fees deduction.
cannot actively participate. Limited partners
1040-SR), line 28, report $7,200 of the
The deductible part of self-employment
cannot actively participate unless future
losses as a passive loss in column (g). Carry
taxes.
regulations provide an exception.
forward to 2019 the unallowed loss of $4,800
The exclusion from income of interest
($12,000 − $7,200).
You are not considered to actively
from Series EE or I U.S. Savings Bonds used
participate in a rental real estate activity if, at
If you have unallowed losses from more
to pay higher education expenses.
any time during the tax year, your interest
than one activity of the PTP or from the same
The exclusion of amounts received under
(including your spouse's interest) in the
activity of the PTP that must be reported on
an employer's adoption assistance program.
activity was less than 10% (by value) of all
different forms, you must allocate the
Commercial revitalization deduction.
interests in the activity.
unallowed losses on a pro rata basis to figure
The special $25,000 allowance for the
the amount allowed from each activity or on
Active participation is a less stringent
commercial revitalization deduction from
each form.
requirement than material participation. You
rental real estate activities isn't subject to the
may be treated as actively participating if you
To allocate and keep a record of the
active participation rules or modified
participated, for example, in making
unallowed losses, use Worksheets
adjusted gross income limits discussed
TIP
management decisions or arranging for
5, 6, and 7 of Form 8582. List each
earlier. See section 469(i)(3)(C) as in effect
others to provide services (such as repairs)
activity of the PTP in Worksheet 5. Enter the
before March 23, 2018, and the instructions
in a significant and bona fide sense.
overall loss from each activity in column (a).
for box 13, code Q, for more information.
Management decisions that can count as
Complete column (b) of Worksheet 5
active participation include approving new
Special rules for certain other activities.
according to its instructions. Multiply the total
tenants, deciding rental terms, approving
If you have net income (loss), deductions, or
Partner's Inst. for Sch. K-1 (Form 1065) (2019)
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