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)"

This document contains official 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) - a tax form released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury.

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Download 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)"

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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1101(b) repealed the electing large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
or
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.
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) . . . . . . . . . . . . . . .
2.
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.)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
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 . . . . . . . . . . . . . .
4.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.
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.) . . . . . . . . . . . . . . . . . . . . . . . . .
7.
following.
8. Your share of the partnership's nondeductible expenses that are not capital
1. Trade or business activities in
expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
which you materially participated.
9. Your share of the partnership's losses and deductions (including capital
2. Rental real estate activities in which
losses)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.
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)
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