Instructions for IRS Form 1065-B Schedule K-1 "Partner's Share of Income (Loss) From an Electing Large Partnership (For Partner's Use Only)"

IRS Form 1065-B Schedule K-1 2017 Printable Pdf

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2017

Department of the Treasury

Internal Revenue Service

Partner's Instructions for

Schedule K-1 (Form 1065-B)

Partner's Share of Income (Loss) From an Electing Large Partnership

(For Partner's Use Only)

elections affecting partnership income are

section 751(a) exchange must notify the

Section references are to the Internal Revenue

Code unless otherwise noted.

made by the electing large partnership.

partnership, in writing, within 30 days of

the exchange (or, if earlier, by January 15

For limited partners, income and other

Future Developments

of the calendar year following the calendar

items from the partnership's trade or

year in which the exchange occurred). A

For the latest information about

business and rental activities are treated

“section 751(a) exchange” is any sale or

developments related to Schedule K-1

as being from a trade or business that is a

exchange of a partnership interest in

(Form1065-B) and its instructions, such as

single passive activity. These items are

which any money or other property

legislation enacted after they were

reported in boxes 1, 4a, and 5, with most

received by the partner in exchange for

published, go to IRS.gov/Form1065B.

credits being reported in boxes 7 and 8.

that partner's interest is attributable to

General partners must make their own

What’s New

unrealized receivables (as defined in

determinations as to whether the activities

section 751(c)) or inventory items (as

are passive for them. Therefore,

Schedule K-1 (1065-B) and its instruc-

defined in section 751(d)).

partnership items from trade or business,

tions. Public Law 114-74, Title XI, sec.

rental real estate, and other rental

The written notice to the partnership

1101(b) repealed the electing large

activities are separately reported for each

must include the names and addresses of

partnership rules for partnership tax years

activity in box 9.

both parties to the exchange, the

beginning after 2017. As a result,

identifying numbers of the transferor and

Schedule K-1 (Form 1065-B) and its

Income, etc., from other activities

(if known) of the transferee, and the

instructions will be obsoleted after 2017.

(investment and portfolio income and

exchange date.

deductions) are reported in boxes 2, 3, 4b,

General Instructions

and 6 for both limited and general

An exception to this rule is made for

partners.

sales or exchanges of publicly traded

Purpose of Schedule K-1

partnership interests for which a broker is

Errors

required to file Form 1099-B, Proceeds

The partnership uses Schedule K-1 to

You must report partnership items shown

From Broker and Barter Exchange

report your share of the partnership's

on your Schedule K-1 (and any attached

Transactions.

income, deductions, credits, etc. Keep it

statements) the same way that the

for your records. Don’t file it with your tax

If a partner is required to notify the

partnership treated the items on its return.

return. The partnership has filed a copy

partnership of a section 751(a) exchange

If you believe the partnership has made an

with the IRS.

but fails to do so, the partner will be

error on your Schedule K-1, notify the

You are liable for tax on your share of

subject to a penalty for each such failure.

partnership. Don’t change any items on

the partnership income, whether or not

However, no penalty will be imposed if the

your copy of Schedule K-1. Generally, an

distributed. Include your share on your tax

partner can show that the failure was due

adjustment to correct an error will take

to reasonable cause and not willful

return if a return is required. Use these

effect for the tax year in which the

neglect.

instructions to help you report the items

partnership actually makes the

shown on Schedule K-1 on your tax return.

adjustment. However, if the error involves

Gain or loss from the disposition

a change to your share of a partnership

of your partnership interest may

The amount of loss and deduction that

TIP

item, the partnership should file an

be net investment income under

you can claim on your tax return may be

amended partnership return and send you

section 1411 and could be subject to the

less than the amount reported on

a corrected Schedule K-1.

net investment income tax. See Form

Schedule K-1. It is the partner's

8960, Net Investment Income

responsibility to consider and apply any

If the treatment on your original or

Tax—Individuals, Estates, and Trusts, and

applicable limitations. See

Limitations on

amended return is inconsistent with the

its instructions for information about how

Losses, Deductions, and

Credits, later, for

partnership's treatment, you may be

to figure and report the tax due.

more information.

subject to the accuracy-related penalty.

This penalty is in addition to any tax that

Electing Large

results from making your amount or

Nominee Reporting

treatment of the item consistent with that

Partnerships (ELPs)

Any person who holds, directly or

shown on the partnership's return. Any

This partnership has elected simplified

indirectly, an interest in a partnership as a

deficiency that results from making the

reporting requirements intended to make it

nominee for another person must furnish a

amounts consistent may be assessed

simpler for you to report your share of

written statement to the partnership by the

immediately.

partnership income, credits, deductions,

last day of the month following the end of

etc. In most cases, income, capital gains,

Sale or Exchange of

the partnership's tax year. This statement

credits, and deductions are combined at

must include the name, address, and

Partnership Interest

the partnership level so that the number of

identifying number of the nominee and

partnership items separately reported to

Generally, a partner who sells or

such other person, description of the

partners is reduced. Most limitations and

exchanges a partnership interest in a

partnership interest held as nominee for

Sep 22, 2017

Cat. No. 26141W

2017

Department of the Treasury

Internal Revenue Service

Partner's Instructions for

Schedule K-1 (Form 1065-B)

Partner's Share of Income (Loss) From an Electing Large Partnership

(For Partner's Use Only)

elections affecting partnership income are

section 751(a) exchange must notify the

Section references are to the Internal Revenue

Code unless otherwise noted.

made by the electing large partnership.

partnership, in writing, within 30 days of

the exchange (or, if earlier, by January 15

For limited partners, income and other

Future Developments

of the calendar year following the calendar

items from the partnership's trade or

year in which the exchange occurred). A

For the latest information about

business and rental activities are treated

“section 751(a) exchange” is any sale or

developments related to Schedule K-1

as being from a trade or business that is a

exchange of a partnership interest in

(Form1065-B) and its instructions, such as

single passive activity. These items are

which any money or other property

legislation enacted after they were

reported in boxes 1, 4a, and 5, with most

received by the partner in exchange for

published, go to IRS.gov/Form1065B.

credits being reported in boxes 7 and 8.

that partner's interest is attributable to

General partners must make their own

What’s New

unrealized receivables (as defined in

determinations as to whether the activities

section 751(c)) or inventory items (as

are passive for them. Therefore,

Schedule K-1 (1065-B) and its instruc-

defined in section 751(d)).

partnership items from trade or business,

tions. Public Law 114-74, Title XI, sec.

rental real estate, and other rental

The written notice to the partnership

1101(b) repealed the electing large

activities are separately reported for each

must include the names and addresses of

partnership rules for partnership tax years

activity in box 9.

both parties to the exchange, the

beginning after 2017. As a result,

identifying numbers of the transferor and

Schedule K-1 (Form 1065-B) and its

Income, etc., from other activities

(if known) of the transferee, and the

instructions will be obsoleted after 2017.

(investment and portfolio income and

exchange date.

deductions) are reported in boxes 2, 3, 4b,

General Instructions

and 6 for both limited and general

An exception to this rule is made for

partners.

sales or exchanges of publicly traded

Purpose of Schedule K-1

partnership interests for which a broker is

Errors

required to file Form 1099-B, Proceeds

The partnership uses Schedule K-1 to

You must report partnership items shown

From Broker and Barter Exchange

report your share of the partnership's

on your Schedule K-1 (and any attached

Transactions.

income, deductions, credits, etc. Keep it

statements) the same way that the

for your records. Don’t file it with your tax

If a partner is required to notify the

partnership treated the items on its return.

return. The partnership has filed a copy

partnership of a section 751(a) exchange

If you believe the partnership has made an

with the IRS.

but fails to do so, the partner will be

error on your Schedule K-1, notify the

You are liable for tax on your share of

subject to a penalty for each such failure.

partnership. Don’t change any items on

the partnership income, whether or not

However, no penalty will be imposed if the

your copy of Schedule K-1. Generally, an

distributed. Include your share on your tax

partner can show that the failure was due

adjustment to correct an error will take

to reasonable cause and not willful

return if a return is required. Use these

effect for the tax year in which the

neglect.

instructions to help you report the items

partnership actually makes the

shown on Schedule K-1 on your tax return.

adjustment. However, if the error involves

Gain or loss from the disposition

a change to your share of a partnership

of your partnership interest may

The amount of loss and deduction that

TIP

item, the partnership should file an

be net investment income under

you can claim on your tax return may be

amended partnership return and send you

section 1411 and could be subject to the

less than the amount reported on

a corrected Schedule K-1.

net investment income tax. See Form

Schedule K-1. It is the partner's

8960, Net Investment Income

responsibility to consider and apply any

If the treatment on your original or

Tax—Individuals, Estates, and Trusts, and

applicable limitations. See

Limitations on

amended return is inconsistent with the

its instructions for information about how

Losses, Deductions, and

Credits, later, for

partnership's treatment, you may be

to figure and report the tax due.

more information.

subject to the accuracy-related penalty.

This penalty is in addition to any tax that

Electing Large

results from making your amount or

Nominee Reporting

treatment of the item consistent with that

Partnerships (ELPs)

Any person who holds, directly or

shown on the partnership's return. Any

This partnership has elected simplified

indirectly, an interest in a partnership as a

deficiency that results from making the

reporting requirements intended to make it

nominee for another person must furnish a

amounts consistent may be assessed

simpler for you to report your share of

written statement to the partnership by the

immediately.

partnership income, credits, deductions,

last day of the month following the end of

etc. In most cases, income, capital gains,

Sale or Exchange of

the partnership's tax year. This statement

credits, and deductions are combined at

must include the name, address, and

Partnership Interest

the partnership level so that the number of

identifying number of the nominee and

partnership items separately reported to

Generally, a partner who sells or

such other person, description of the

partners is reduced. Most limitations and

exchanges a partnership interest in a

partnership interest held as nominee for

Sep 22, 2017

Cat. No. 26141W

that person, and other information

oil refiner described in section 613A(d)(4),

in a later year subject to the basis limit for

required by Temporary Regulations

that year.

section 1.6031(c)-1T. A nominee who fails

Your average daily production of

The partnership isn’t responsible for

to furnish this statement must furnish to

domestic crude oil and natural gas

keeping the information needed to figure

the person for whom the nominee holds

exceeds 500 barrels for your tax year in

the basis of your partnership interest. You

the partnership interest a copy of

which the partnership's tax year ends. See

can figure the adjusted basis of your

Schedule K-1 and related information

section 776(b) for more details.

partnership interest by adding items that

within 30 days of receiving it from the

increase your basis and then subtracting

Note. Disqualified persons must report

partnership.

items that decrease your basis.

items of income, gain, loss, deduction,

A nominee who fails to furnish when

and credit attributable to partnership oil

due all the information required by

Use the Worksheet for Adjusting the

and gas properties as if the special rules

Temporary Regulations section

Basis of a Partner's Interest in the

for ELPs did not apply.

1.6031(c)-1T, or who furnishes incorrect

Partnership, later, to figure the basis of

Nonrecourse Loans

information, is subject to a $260 penalty

your interest in the partnership.

for each failure. The maximum penalty is

Nonrecourse loans are those liabilities of

Additional basis adjustments may

$3,218,500 for all such failures during a

the partnership for which no partner or

apply to partners claiming

calendar year. If the nominee intentionally

related person bears the economic risk of

deductions for depletion. See

disregards the requirement to report

CAUTION

loss.

Pub. 535 for details.

correct information, each $260 penalty

Elections

increases to $530 or, if greater, 10% of the

At-Risk Limitations

aggregate amount of items required to be

Generally, the partnership decides how to

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

reported, and there is no limit to the

figure taxable income from its operations.

deduction from any activity carried on as a

amount of the penalty.

However, two elections are made by you

trade or business or for the production of

separately on your income tax return and

International Boycotts

income by the partnership, and (b)

not by the partnership. These elections

amounts in the activity for which you are

Every partnership that had operations in,

are made under the following Code

not at risk, you will have to complete Form

or related to, a boycotting country,

sections.

6198, At-Risk Limitations, to figure your

company, or a national of a boycotting

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

allowable loss for the activity.

country must file Form 5713, International

reduction of tax attributes due to exclusion

Boycott Report.

from gross income of discharge of

The at-risk rules generally limit the

indebtedness).

amount of loss and other deductions that

If the partnership cooperated with an

Section 901 (foreign tax credit).

you can claim to the amount you could

international boycott, it must provide you

actually lose in the activity. However, if

with a copy of its Form 5713. As a general

Additional Information

you acquired your partnership interest

or limited partner, you must file your own

before 1987, the at-risk rules don’t apply

Form 5713 to report the partnership's

For more information on the treatment of

to losses from an activity of holding real

activities and any other boycott operations

partnership income, deductions, credits,

property placed in service before 1987 by

etc., see the following.

that you may have. You may lose certain

the partnership. The activity of holding

tax benefits if the partnership participated

Pub. 541, Partnerships.

mineral property doesn’t qualify for this

in, or cooperated with, an international

Pub. 535, Business Expenses.

exception. The partnership should identify

boycott. See Form 5713 and its

Pub. 925, Passive Activity and At-Risk

on an attached statement to Schedule K-1

Rules.

instructions for more information.

the amount of any losses that aren’t

To get forms and publications, see the

Definitions

subject to the at-risk limitations.

instructions for your tax return or visit the

IRS website at IRS.gov.

Generally, you aren’t at risk for

General Partner

amounts such as the following.

A general partner is a partner who is

Limitations on Losses,

Nonrecourse loans used to finance the

personally liable for partnership debts.

activity, to acquire property used in the

Deductions, and Credits

Limited Partner

activity, or to acquire your interest in the

There are three separate potential

activity, that aren’t secured by your own

A limited partner is a partner in a

limitations on the amount of partnership

property (other than the property used in

partnership formed under a state limited

losses that you can deduct on your return.

the activity). See the instructions for

partnership law, whose personal liability

These limitations and the order in which

Partner's Share of

Liabilities, later, for the

for partnership debts is limited to the

you must apply them are as follows: the

exception for qualified nonrecourse

amount of money or other property that

basis limitations, the at-risk limitations,

financing secured by real property.

the partner contributed or is required to

and the passive activity limitations. Each

Cash, property, or borrowed amounts

contribute to the partnership. Some

of these limitations is discussed

used in the activity (or contributed to the

members of other entities, such as

separately below.

activity, or used to acquire your interest in

domestic or foreign business trusts or

the activity) that are protected against loss

Basis Limitations

limited liability companies that are

by a guarantee, stop-loss agreement, or

classified as partnerships, may be treated

Generally, you can’t claim your share of a

other similar arrangement (excluding

as limited partners for certain purposes.

partnership loss (including a capital loss)

casualty insurance and insurance against

to the extent that it is greater than the

Disqualified Person

tort liability).

adjusted basis of your partnership interest

Amounts borrowed for use in the

If you are a partner in a partnership

at the end of the partnership's tax year.

activity from a person who has an interest

holding oil and gas properties, you are a

Any losses and deductions not allowed

in the activity, other than as a creditor, or

disqualified person if:

this year because of the basis limit can be

who is related, under section 465(b)(3), to

carried forward indefinitely and deducted

You are an oil or natural gas retailer

a person (other than you) having such an

described in section 613A(d)(2) or crude

interest.

Instructions for Schedule K-1 (1065-B)

-2-

However, the determination of whether

Worksheet for Adjusting the Basis of a

an activity is a passive activity must be

Keep for Your Records

Partner's Interest in the Partnership

made by any partner who is either a:

General partner; or

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

Limited partner who is a disqualified

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

person (as defined earlier) with respect to

items of income, gain, loss, deduction,

Increases:

and credit attributable to partnership oil

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

and gas properties.

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

In addition, the partnership is required

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

to provide each general partner and

your share of liabilities shown on your 2016 Schedule K-1 from your share

disqualified person the information

of liabilities shown on your 2017 Schedule K-1 and add the amount of any

partnership liabilities you assumed during the tax year. Do not enter less

necessary to comply with the passive

than zero.)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

activity rules of section 469. Items of

income, gain, loss, credit, etc., must be

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

separately reported to general partners for

income) reduced by any amount included in interest income with respect to

each trade or business, rental real estate,

the credit to holders of clean renewable energy bonds . . . . . . . . . . . . . .

and other rental activity.

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

Except for the PTP discussion,

gain from transfer of liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

later, the following information on

Decreases:

passive activity limitations applies

CAUTION

only to general partners.

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

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

property distributions included in the partner's income (taxable

Generally, passive activities include:

income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Trade or business activities in

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

which you didn’t materially participate, and

basis of your partnership interest immediately before the distribution.

2. Activities that meet the definition of

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

rental activities under Temporary

individual liabilities because they were assumed by the partnership.

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

(Subtract your share of liabilities shown on your 2017 Schedule K-1 from

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

your share of liabilities shown on your 2016 Schedule K-1 and add the

amount of your individual liabilities that the partnership assumed during the

Passive activities don’t include the

tax year. Do not enter less than zero.) . . . . . . . . . . . . . . . . . . . . . . . . .

following.

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

1. Trade or business activities in

expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

which you materially participated.

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

2. Rental real estate activities in which

losses)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

you materially participated if you were a

real estate professional for the tax year.

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

You were a real estate professional only if

1 through 5 and subtract lines 6 through 9 from the total. If zero or less,

you met both of the following conditions.

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

10.

a. More than half of the personal

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

services you performed in trades or

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

businesses were performed in real

you entered zero on line 10 and the amount figured for line 10 was less than

property trades or businesses in which

zero, a portion of your share of the partnership losses and deductions may

not be deductible (see

Basis

Limitations, earlier, for more information).

you materially participated.

b. You performed more than 750

hours of services in real property trades or

You should get a separate statement of

Passive Activity Credit Limitations, to

businesses in which you materially

income, expenses, etc., for each activity

figure your allowable passive credits.

participated.

from the partnership.

If the publicly traded partnership

If you are married filing jointly, either

Passive Activity Limitations

(PTP) box on Schedule K-1 is

you or your spouse must separately meet

checked, do not report passive

both of the above conditions, without

Section 469 provides rules that limit the

CAUTION

income (loss) from the partnership on

taking into account services performed by

deduction of certain losses and credits.

Form 8582. See the special rules for

the other spouse.

These rules apply to partners who:

PTPs, later.

Are individuals, estates, trusts, closely

For a closely held C corporation

held C corporations (other than S

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

Corporations. Use Form 8810,

corporations), or personal service

the above conditions are treated

Corporate Passive Activity Loss and

CAUTION

corporations; and

as met if more than 50% of the

Credit Limitations. See the instructions for

Have a passive activity loss or credit for

corporation's gross receipts were from real

more information.

the tax year.

property trades or businesses in which the

For limited partners of an ELP, all

corporation materially participated.

Individuals, estates, and trusts. If you

income, loss, deductions, and credits from

have a passive activity loss or credit, use

For purposes of this rule, each interest

trade or business and rental activities

Form 8582, Passive Activity Loss

in rental real estate is a separate activity,

generally are reported as being from a

Limitations, to figure your allowable

unless you elect to treat all interests in

trade or business that is a single passive

passive losses and Form 8582-CR,

rental real estate as one activity. For

activity.

Instructions for Schedule K-1 (1065-B)

-3-

details on making this election, see the

4. The activity was a significant

You materially participated in a trade or

Instructions for Schedule E (Form 1040).

participation activity for the tax year, and

business activity of the partnership, or

you participated in all significant

You were a real estate professional in a

A real property trade or business is any

participation activities (including activities

rental real estate activity of the

real property development,

outside the partnership) during the year for

partnership.

redevelopment, construction,

more than 500 hours. A significant

reconstruction, acquisition, conversion,

If you determine that you didn’t

participation activity is any trade or

rental, operation, management, leasing, or

materially participate in a trade or

business activity in which you participated

brokerage trade or business. Services you

business activity of the partnership or if

for more than 100 hours during the tax

performed as an employee are not treated

you have income (loss), deductions, or

year and in which you didn’t materially

as performed in a real property trade or

credits from a rental activity of the

participate under any of the material

business unless you owned more than 5%

partnership (other than a rental real estate

participation tests (other than this test 4).

of the stock (or more than 5% of the

activity in which you materially participated

capital or profits interest) in the employer.

5. You materially participated in the

as a real estate professional), the amounts

activity for any 5 tax years (whether or not

from that activity are passive. Report

3. Working interests in oil or gas wells.

consecutive) during the 10 tax years that

passive income (losses), deductions, and

4. The rental of a dwelling unit any

immediately precede the tax year.

credits as follows.

partner used for personal purposes during

6. The activity was a personal service

1. If you have an overall gain (the

the year for more than the greater of 14

activity, and you materially participated in

excess of income over deductions and

days or 10% of the number of days that

the activity for any 3 tax years (whether or

losses, including any prior year unallowed

the residence was rented at fair rental

not consecutive) preceding the tax year. A

loss) from a passive activity, report the

value.

personal service activity involves the

income, deductions, and losses from the

5. Activities of trading personal

performance of personal services in the

activity as indicated in the instructions for

property for the account of owners of

fields of health, law, engineering,

the boxes in which those items were

interests in the activities.

architecture, accounting, actuarial

reported.

science, performing arts, consulting, or

2. If you have an overall loss (the

Material participation. You must

any other trade or business in which

excess of deductions and losses,

determine if you (a) materially participated

capital isn’t a material income-producing

including any prior year unallowed loss,

in each trade or business activity held

factor.

over income) or credits from a passive

through the partnership, and (b) were a

7. Based on all the facts and

activity, report the income, deductions,

real estate professional (defined earlier),

circumstances, you participated in the

losses, and credits from all passive

in each rental real estate activity held

activity on a regular, continuous, and

activities using the Instructions for Form

through the partnership. All determinations

substantial basis during the tax year.

8582 or Form 8582-CR (or Form 8810), to

of material participation are made based

see if your deductions, losses, and credits

on your participation during the

Work counted toward material

are limited under the passive activity rules.

partnership's tax year.

participation. Generally, any work that

Material participation standards for

you or your spouse does in connection

Special allowance for rental real estate

partners who are individuals are listed

with an activity held through a partnership

activities. If you actively participated in a

below. Special rules apply to certain

(where you own your partnership interest

rental real estate activity, you may be able

retired or disabled farmers and to the

at the time the work is done) is counted

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

surviving spouses of farmers. See the

toward material participation. However,

the activity from nonpassive income. This

Instructions for Form 8582 for details.

work in connection with the activity is not

“special allowance” is an exception to the

counted toward material participation if

Corporations should refer to the

general rule disallowing losses in excess

either of the following applies.

Instructions for Form 8810 for the material

of income from passive activities. The

participation standards that apply to them.

1. The work isn’t the sort of work that

special allowance isn’t available if you

owners of the activity would usually do

were married, filed a separate return for

Individuals (other than limited

and one of the principal purposes of the

the year, and did not live apart from your

partners). If you are an individual (either

work that you or your spouse does is to

spouse at all times during the year.

a general partner or a limited partner who

avoid the passive loss or credit limitations.

Only individuals, qualifying estates, and

owned a general partnership interest at all

2. You do the work in your capacity as

qualifying revocable trusts that made a

times during the tax year), you materially

an investor and you aren’t directly involved

section 645 election can actively

participated in an activity only if one or

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

participate in a rental real estate activity.

more of the following apply.

Examples of work done as an investor that

Estates (other than qualifying estates),

1. You participated in the activity for

would not count toward material

trusts (other than qualifying revocable

more than 500 hours during the tax year.

participation include the following.

trusts that made a section 645 election),

2. Your participation in the activity for

and corporations can’t actively participate.

a. Studying and reviewing financial

the tax year constituted substantially all

statements or reports on operations of the

You aren’t considered to actively

the participation in the activity of all

activity.

participate in a rental real estate activity if

individuals (including individuals who are

at any time during the tax year your

b. Preparing or compiling summaries

not owners of interests in the activity for

interest (including your spouse's interest)

or analyses of the finances or operations

the tax year).

in the activity was less than 10% (by

of the activity for your own use.

3. You participated in the activity for

value) of all interests in the activity.

c. Monitoring the finances or

more than 100 hours during the tax year,

Active participation is a less stringent

operations of the activity in a

and your participation in the activity for the

requirement than material participation.

nonmanagerial capacity.

tax year was not less than the participation

You may be treated as actively

in the activity of any other individual

Effect of determination. Income

participating if you participated, for

(including individuals who were not

(loss), deductions, and credits from an

example, in making management

owners of interests in the activity) for the

activity are nonpassive if you determine

decisions or arranging for others to

tax year.

that:

provide services (such as repairs) in a

Instructions for Schedule K-1 (1065-B)

-4-

significant and bona fide sense.

The exclusion of amounts received

disposed of, any unused losses are

Management decisions that can count as

under an employer's adoption assistance

allowed in full in the year of disposition.

active participation include approving new

program.

If you have an overall gain from a PTP,

tenants, deciding rental terms, approving

the net gain is nonpassive income. In

Commercial revitalization

capital or repair expenditures, and other

addition, the nonpassive income is

deduction. The special $25,000

similar decisions.

included in investment income to figure

allowance for the commercial revitalization

An estate is a qualifying estate if the

your investment interest expense

deduction from rental real estate activities

decedent would have satisfied the active

deduction.

isn’t subject to the active participation

participation requirement for the activity

rules or modified adjusted gross income

Don’t report passive income, gains, or

for the tax year the decedent died. A

limits discussed above. See Code Q.

losses from a PTP on Form 8582. Instead,

qualifying estate is treated as actively

Commercial Revitalization Deduction,

use the following rules to figure and report

participating for tax years ending less than

later.

on the proper form or schedule your

2 years after the date of the decedent's

income, gains, and losses from passive

Special rules for certain other activi-

death.

activities that you held through each PTP

ties. If you have net income (loss),

you owned during the tax year.

Modified adjusted gross income

deductions, or credits from any activity to

limitation. The maximum special

1. Combine any current year income,

which special rules apply, the partnership

allowance that single individuals and

gains (losses), and any prior year

will identify the activity and all amounts

married individuals filing a joint return can

unallowed losses to see if you have an

relating to it on Schedule K-1 or on an

qualify for is $25,000. The maximum is

overall gain (loss) from the PTP. Include

attached statement.

$12,500 for married individuals who file

only the same types of income and losses

If you have net income subject to

separate returns and who lived apart all

you would include in your net income or

recharacterization under Temporary

times during the year. The maximum

loss from a non-PTP passive activity. See

Regulations section 1.469-2T(f) and

special allowance for which an estate can

Pub. 925 for more details.

Regulations section 1.469-2(f), report

qualify is $25,000 reduced by the special

2. If you have an overall gain, the net

such amounts according to the

allowance for which the surviving spouse

gain portion (total gain minus total losses)

Instructions for Form 8582 (or Form 8810).

qualifies.

is nonpassive income. On the form or

If you have net income (loss),

If your modified adjusted gross income

schedule you normally use, report the net

deductions, or credits from any of the

(defined below) is $100,000 or less

gain portion as nonpassive income and

following activities, treat such amounts as

($50,000 or less if married filing

the remaining income and the total losses

nonpassive and report them as instructed

separately), your loss is deductible up to

as passive income and loss. To the left of

in these instructions.

the amount of the maximum special

the entry space, enter “From PTP.” It is

Working interests in oil and gas wells.

allowance referred to in the preceding

important to identify the nonpassive

The rental of a dwelling unit any partner

paragraph. If your modified adjusted gross

income because the nonpassive portion is

used for personal purposes during the

income is more than $100,000 (more than

included in modified adjusted gross

year for more than the greater of 14 days

$50,000 if married filing separately), the

income for purposes of figuring on Form

or 10% of the number of days that the

special allowance is limited to 50% of the

8582 the “special allowance” for active

residence was rented at fair rental value.

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

participation in a non-PTP rental real

Trading personal property for the

married filing separately) and your

estate activity. In addition, the nonpassive

account of owners of interests in the

modified adjusted gross income. When

income is included in investment income

activity.

modified adjusted gross income is

when figuring your investment interest

Self-charged interest. The partnership

$150,000 or more ($75,000 or more if

expense deduction on Form 4952,

must report any “self-charged” interest

married filing separately), there is no

Investment Interest Expense Deduction.

special allowance.

income or expense that resulted from

Example. If you have Schedule E

loans between you and the partnership (or

Modified adjusted gross income is your

income of $8,000, and a Form 4797 prior

between the partnership and another

adjusted gross income figured without

year unallowed loss of $3,500 from the

partnership in which you have an interest).

taking into account the following amounts,

passive activities of a particular PTP, you

If there was more than one activity, the

if applicable.

have a $4,500 overall gain ($8,000 −

partnership will provide a statement

Any passive activity loss.

$3,500). On Schedule E (Form 1040),

allocating the interest income or expense

Any rental real estate loss allowed

line 28, report the $4,500 net gain as

with respect to each activity. The

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

nonpassive income in column (j). In

self-charged interest rules don’t apply to

professionals (as defined earlier).

column (g), report the remaining

your partnership interest if the partnership

Any overall loss from a publicly traded

Schedule E gain of $3,500 ($8,000 −

made an election under Regulations

partnership.

$4,500). On the appropriate line of Form

section 1.469-7(g) to avoid the application

Any taxable social security or

4797, report the prior year unallowed loss

of these rules. See the Instructions for

equivalent railroad retirement benefits.

of $3,500. Be sure to enter “From PTP” to

Form 8582 for more information.

Any deductible contributions to an IRA

the left of each entry space.

or certain other qualified retirement plans

Publicly traded partnerships. The

3. If you have an overall loss (but

under section 219.

passive activity limitations are applied

didn’t dispose of your entire interest in the

The domestic production activities

separately for items (other than the

PTP to an unrelated person in a fully

deduction.

low-income housing credit and the

taxable transaction during the year), the

The student loan interest deduction.

rehabilitation credit) from each PTP. Thus,

losses are allowed to the extent of the

The tuition and fees deduction.

a net passive loss from a PTP may not be

income, and the excess loss is carried

The deduction for one-half of

deducted from other passive income.

forward to use in a future year when you

self-employment taxes.

Instead, a passive loss from a PTP is

have income to offset it. Report as a

The exclusion from income of interest

suspended and carried forward to be

passive loss on the schedule or form you

from Series EE and I U.S. Savings Bonds

applied against passive income from the

normally use the portion of the loss equal

used to pay higher education expenses.

same PTP in later years. If the partner's

to the income. Report the income as

entire interest in the PTP is completely

Instructions for Schedule K-1 (1065-B)

-5-

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