U. S. Business Income Tax Return

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TREASURY/IRS AND OMB USE ONLY DRAFT

2025

Partner’s Instructions for
Schedule K-1 (Form 1065)
Partner’s Share of Income, Deductions, Credits, etc.
(For Partner’s Use Only)
Section references are to the Internal Revenue Code
unless otherwise noted.

Future Developments
For the latest information about developments related to
Schedule K-1 (Form 1065) and the Partner’s Instructions
for Schedule K-1 (Form 1065), such as legislation enacted
after they were published, go to IRS.gov/Form1065.

Schedule K-1, box 13, code X. Public Law 119-21,
commonly known as the One Big Beautiful Bill Act,
expanded section 181 to include certain qualified sound
recording production expenses. Code X has been
updated to include the additional expense.
Schedule K-1, box 19, distributions. Instructions were
updated to explain how the partnership separately coded
different categories of distributions reported to you in
box 19 of Schedule K-1. See Box 19, later.
Schedule K-1, box 20, code ZZ. P.L. 119-21 added
section 1062, gain from the sale or exchange of qualified
farmland property to qualified farmers. For tax years
beginning after July 4, 2025, a partner can make an
election under section 1062 to pay the tax on the gain
from the sale or exchange of qualified farmland property to
qualified farmers in four equal, annual installments. See
Code ZZ under Box 20, later, for additional information.

Reminders
Form 7217. Beginning in tax year 2024, partners who
received property distributions from the partnership must
file with their annual tax return a separate Form 7217,
Partner’s Report of Property Distributed by a Partnership,
for each date during the tax year on which they actually
(and not constructively) received properties subject to
section 732. Don’t file Form 7217 if the distribution
consisted only of money or marketable securities treated
as money. Also, don’t file Form 7217 for payments to you
for services other than in your capacity as a partner under
section 707(a)(1) or for transfers that are treated as
disguised sales under section 707(a)(2)(B). The
partnership will provide information. See Code C under
Box 19, later. Also see Form 7217 and its instructions.

Nov 20, 2025

Purpose of Schedule K-1

The partnership uses Schedule K-1 to report your share of
the partnership’s income, deductions, credits, etc. Keep it
for your records. Don’t file it with your tax return unless
you're specifically required to do so. (See Code O under
Box 15, later.) The partnership files a copy of
Schedule K-1 (Form 1065) with the IRS.
For your protection, Schedule K-1 may show only the
last four digits of your identifying number (social security
number (SSN), etc.). However, the partnership has
reported your complete identifying number to the IRS.

Although the partnership generally isn’t subject to
income tax, you may be liable for tax on your share of the
partnership income, whether or not distributed. Include
your share on your tax return if a return is required. Use
these instructions to help you report the items shown on
Schedule K-1 on your tax return.
The amount of loss and deduction you may claim on
your tax return may be less than the amount reported on
Schedule K-1. It’s the partner’s responsibility to consider
and apply any applicable limitations. See Limitations on
Losses, Deductions, and Credits, later, for more
information.

Inconsistent Treatment of Items

If you’re a partner in a partnership that hasn’t elected out
of the centralized partnership audit regime enacted by the
Bipartisan Budget Act of 2015 (the BBA), you must report
the items shown on your Schedule K-1 (and any attached
statements) the same way that the partnership treated the
items on its return.

If the treatment on your original or amended return is
inconsistent with the partnership’s treatment, or if the
partnership was required to file a return but hasn’t, you
must file Form 8082, Notice of Inconsistent Treatment or
Administrative Adjustment Request (AAR), with your
original or amended return to identify and explain any
inconsistency (or to note that a partnership return hasn’t
been filed).
If you’re required to file Form 8082 but don’t do so, you
may be subject to the accuracy-related penalty. This
penalty is in addition to any tax that results from making
your amount or treatment of the item consistent with that
shown on the partnership’s return. Any deficiency that
results from making the amounts consistent may be
assessed immediately.

Instructions for Schedule K-1 (Form 1065) (2025) Catalog Number 11396N
Department of the Treasury Internal Revenue Service www.irs.gov

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What’s New

General Instructions

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If you believe the partnership has made an error on your
Schedule K-1, notify the partnership and ask for a
corrected Schedule K-1. Don’t change any items on your
copy of Schedule K-1. Be sure that the partnership sends
a copy of the corrected Schedule K-1 to the IRS.

Decedent’s Schedule K-1

Sale or Exchange of Partnership
Interest

Generally, a partner who sells or exchanges a partnership
interest in a section 751(a) exchange must notify the
partnership, in writing, within 30 days of the exchange (or,
if earlier, by January 15 of the calendar year following the
calendar year in which the exchange occurred). A section
751(a) exchange is any sale or exchange of a partnership
interest in which any money or other property received by
the partner in exchange for that partner’s interest is
attributable to unrealized receivables (as defined in
section 751(c)) or inventory items (as defined in section
751(d)).
The written notice to the partnership must include the
names and addresses of both parties to the exchange, the
identifying numbers of the transferor and (if known) of the
transferee, and the exchange date.
An exception to this rule is made for sales or exchanges
of publicly traded partnership interests for which a broker
is required to file Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions.
If a partner is required to notify the partnership of a
section 751(a) exchange but fails to do so, the partner will
be subject to a penalty for each such failure. However, no
penalty will be imposed if the partner can show that the
failure was due to reasonable cause and not willful
neglect. See Form 8308, Report of a Sale or Exchange of
Certain Partnership Interests, and its instructions for
additional information.
Tip: Gain or loss from the disposition of your partnership
interest may be net investment income (NII) under section
1411 and could be subject to the net investment income
tax (NIIT). See Form 8960, Net Investment Income
Tax—Individuals, Estates, and Trusts, and its instructions
for information about how to report and figure the tax due.
Caution: Three-year holding period requirement for
applicable partnership interests. Section 1061
2

Nominee Reporting

Any person who holds, directly or indirectly, an interest in
a partnership as a nominee for another person must
furnish a written statement to the partnership by the last
day of the month following the end of the partnership’s tax
year. This statement must include the name, address, and
identifying number of the nominee and such other person;
description of the partnership interest held as nominee for
that person; and other information required by Temporary
Regulations section 1.6031(c)-1T. A nominee that fails to
furnish this statement must furnish to the person for whom
the nominee holds the partnership interest a copy of
Schedule K-1 and related information within 30 days of
receiving it from the partnership.
A nominee who fails to furnish all the information
required by Temporary Regulations section 1.6031(c)-1T
when due, or who furnishes incorrect information, is
subject to a $340 penalty for each failure. The maximum
penalty is $4,098,500 ($1,366,000 for a small business)
for all such failures during a calendar year. If the nominee
intentionally disregards the requirement to report correct
information, each $340 penalty increases to $680 or, if
greater, 10% of the aggregate amount of items required to
be reported, and there is no limit to the amount of the
penalty.

Definitions
General Partner

A general partner is a partner who is personally liable for
partnership debts.

Limited Partner

A limited partner is a partner in a partnership formed
under a state limited partnership law, whose personal
liability for partnership debts is limited to the amount of
money or other property that the partner contributed or is
required to contribute to the partnership. Some members
of other entities, such as domestic or foreign business
trusts or limited liability companies (LLCs) that are
classified as partnerships, may be treated as limited
partners for certain purposes.
However, whether a partner qualifies as a limited
partner for purposes of self-employment tax depends on
whether the partner is considered a limited partner under
section 1402(a)(13).

Nonrecourse Loans

Nonrecourse loans are those liabilities of the partnership
for which no partner or related person bears the economic
risk of loss.

Elections

Generally, the partnership decides how to figure taxable
income from its operations. However, certain elections are
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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If you’re the executor of an estate and have received a
decedent’s Schedule K-1, then you have the responsibility
to notify the partnership of the name and taxpayer
identification number (TIN) of the decedent’s estate if the
partnership interest is part of the decedent’s estate. If a
decedent died in a prior year and the partnership
continues to send the decedent a Schedule K-1 after
being notified of the decedent’s death, then you should
request that the partnership send a corrected
Schedule K-1. If you receive an interest in a partnership by
reason of a former partner’s death, you must provide the
partnership with your name and TIN. For treatment of
partnership income upon the death of a partner, see Pub.
559, Survivors, Executors, and Administrators.

increases the required long-term capital gains holding
period for an applicable partnership interest from more
than 1 year to more than 3 years. The holding period
applies only to applicable partnership interests held in
connection with the performance of services as defined in
section 1061. See section 1061 and Pub. 541,
Partnerships, for details.

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made by you separately on your income tax return and not
by the partnership. These partner-level elections include
those made under the following code sections.
• Section 59(e) (deduction of certain qualified
expenditures ratably over the period of time specified
in that section). For details, see Code J under Box 13,
later.
• Section 108(b)(5) (election related to reduction of tax
attributes due to exclusion from gross income of
discharge of indebtedness).
• Section 263A(d) (preproductive expenses). See Code
P under Box 13, later.
• Section 469(c)(7)(A) (aggregation election by real
estate professional). See Passive Activity Limitations,
later.
• Section 617 (deduction and recapture of certain
mining exploration expenditures).
• Section 901 (foreign tax credit). See Schedule K-3.
• Section 1062 (election to pay tax in installments for
sale of qualified farmland property). See Code ZZ
under Box 20, later.
To get forms and publications, see the instructions for your
tax return or go to IRS.gov.

Limitations on Losses, Deductions,
and Credits

There are potential limitations on partnership losses that
you can deduct on your return. These limitations and the
order in which you must apply them are as follows: the
basis limitations, the at-risk limitations, the passive activity
limitations, and the excess business loss limitations.
These limitations are discussed below.
Other limitations may apply to specific deductions (for
example, the section 179 expense deduction). Generally,
specific limitations apply before the at-risk and passive
loss limitations.

Basis Limitations

Generally, a partner may only claim their share of a
partnership loss (including a capital loss) to the extent it
doesn’t exceed their adjusted basis in the partnership at
the end of the partnership’s tax year. Any losses and
deductions not allowed can be carried forward.

It’s the partner’s responsibility to track and maintain the
information necessary to figure their adjusted basis in the
partnership (also known as outside basis). Regulations
section 1.705-1(a)(1) requires a partner to determine the
adjusted basis in their partnership interest as necessary to
determine their tax liability. For example, a determination
is required when a partner sells or exchanges all or part of
their partnership interest or when a partner’s entire
partnership interest is liquidated. In general, a partner’s
adjusted basis is determined under the principles of
subchapter K, including sections 705, 722, 733, and 742.
Although the partnership provides an analysis of the
partner’s capital account in item L of Schedule K-1, that
information is based on the partnership’s books and
records and can’t be used to figure the partner’s adjusted
basis.
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

For partnership tax years beginning after 2017, a
partner’s share of the adjusted basis in partnership
charitable contributions (defined in section 170(c)) and
taxes, described in section 901, paid or accrued to foreign
countries and to U.S. territories is subject to this basis
limitation (defined in section 704(d)).

Partnership Basis Worksheet Specific
Instructions

There may be some transactions or certain distributions
that require you to determine the adjusted basis of your
partnership interest at the point in time of the transaction
or distribution rather than in the order and amounts
specified in these instructions.

Part I—Partner Basis
Line 1. Enter your adjusted basis at the beginning of the
partnership’s tax year. This will equal your adjusted basis
at the end of the prior year. Basis can’t be less than zero.
Section A—Increases
Line 2. Enter the purchase price of any partnership
interests acquired during the year plus the amount of
money or cash equivalents contributed to the partnership
and the adjusted basis of property contributed to the
partnership minus any liabilities associated with the
property. If liabilities associated with the property are
greater than your adjusted basis in the property, then
include the excess liabilities as liabilities assumed by the
partnership on line 9b. Include the fair market value (FMV)
of any partnership interests received in exchange for
services provided to the partnership, to the extent the
FMV was included in your taxable income. Don’t include
the FMV of services performed in exchange for
guaranteed payments.
Line 3a. Enter the total ending liabilities from your
Schedule K-1, item K1.
Line 3b. Enter the total beginning liabilities from your
Schedule K-1, item K1.
Line 3c. Subtract line 3b from line 3a.
Line 3d. Enter the amount of partnership liabilities you
assumed during the tax year. See Regulations section
1.752-1(d).
Line 3e. Add lines 3c and 3d. If the sum is negative, enter
the amount on line 9a. If the sum is zero or positive, enter
the amount on line 3e.
Line 4. Enter on lines 4a through 4n all separately figured
and non-separately figured items of income from
Schedule K-1. See below for special line item instructions.
Note: Enter only positive amounts from Schedule K-1 on
line 4. Negative amounts (decreases to basis) are entered
on lines 8 through 10.
Line 4d. Reduce interest income reported on this line by
any amount included in interest income with respect to the
credit to holders of clean renewable energy bonds.
3

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Additional Information

Use the Worksheet for Adjusting the Basis of a
Partner’s Interest in the Partnership to figure the basis of
your interest in the partnership.

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Line 4n. Enter the business interest expense (BIE)
reported in box 20, code N, of Schedule K-1, or the
amount by which BIE reduced positive ordinary income
amounts in box 1, 2, or 3 of Schedule K-1, if less.
Line 4o. Enter the sum of the amounts on lines 4a
through 4n.
Line 5. Enter any gain recognized on contributions of
property during the year. For example, a contribution to a
partnership which would be treated as an investment
company if it were incorporated would be subject to gain
and that gain increases basis. Don’t include gain from the
transfer of liabilities.
Line 6. Enter the amount by which your cumulative
depletion deduction (other than oil and gas depletion)
exceeds your proportionate share of basis in the property
subject to depletion.

Line 8a. Enter the cash and adjusted basis of marketable
securities distributed to you by the partnership.
Information concerning the basis of marketable securities
is provided in statements attached to box 19, codes A and
F, of Schedule K-1.
Line 8b. Enter the property distributed subject to
recognition of precontribution gain under section 737 as
reported in box 19, code B, of Schedule K-1. Don’t include
the amount of property distributions included in your
taxable income.
Line 8c. Enter the partnership’s adjusted basis in the
property distributed or, if less, your remaining outside
basis assigned to the property. See Pub. 541.
Line 8d. Add lines 8a, 8b, and 8c.
Line 9a. If the sum of lines 3c and 3d is negative, enter
the amount here; otherwise, enter zero.
Line 9b. Enter the amount of your individual liabilities that
the partnership assumed during the tax year.
Line 9c. Add lines 9a and 9b.
Line 10. Add lines 8d and 9c.
Line 11a. Add lines 7 and 10. If the amount is negative,
enter zero on line 11a; otherwise, enter the positive
amount on line 11b.
Line 11b. See the instructions for line 11a. The amount
reported on this line represents a taxable gain on
distributions in excess of basis. Report the gain on your
tax return.

Part II—Allowable Loss and Deduction Items
A partner’s distributive share of partnership losses and
deduction items in a given tax year is only allowed to the
extent of the partner’s adjusted basis in their partnership
interest following the adjustments described in Part I.
When basis is insufficient, and there is more than one
category of loss or deduction items (for example,
short-term capital loss and long-term capital loss) that
reduces basis, the amount of each category of loss or
4

A partner’s loss and deduction items in excess of basis
are suspended and carried forward for use in the next tax
year in which the partner has adjusted basis in their
partnership interest available. For more information, see
Regulations section 1.704-1(d).
Part II shows the pro rata allocation for each category of
loss or deduction that’s suspended and tracks this
information. Enter numbers as negative amounts.
Note: Positive amounts (increases to basis) are entered
on line 4.
Column A.
Line 12. Enter as a negative amount any nondeductible
expenses reported in box 18 of Schedule K-1.
Line 13. Enter as a negative amount the current-year
deduction for depletion of any partnership oil and gas
property, not to exceed your allocable share of the
adjusted basis of the property.
Column B.
Line 12. Enter any prior-year loss or deduction items
that were suspended due to basis limitations and carried
forward to the current tax year.
Line 13. Enter any prior-year loss or deduction items
that were suspended due to basis limitations and carried
forward to the current tax year.
Column C.
Line 12. Enter the sum of columns A and B.
Line 13. Enter the sum of columns A and B.
Column D.
Line 12. If the sum of lines 12 and 13, column C,
doesn’t exceed the amount on line 11a, then enter the
amount of line 12, column C, in the corresponding line of
column D. If the sum of lines 12 and 13, column C,
exceeds the amount of basis remaining on line 11a, then
you must allocate the remaining basis proportionately in
column D between lines 12 and 13, column C.
Line 13. If the sum of lines 12 and 13, column C,
doesn’t exceed the amount on line 11a, then enter the
amount of line 13, column C. If the sum of lines 12 and 13,
column C, exceeds the amount of basis remaining on
line 11a, then you must allocate the remaining basis
proportionately in column D between lines 12 and 13,
column C.
Column E.
Line 12. If the sum of lines 12 and 13, column C,
exceeds the amount of basis remaining on line 11a,
subtract line 12, column D, from line 12, column C, and
enter the result in column E.
Line 13. If the sum of lines 12 and 13, column C,
exceeds the amount of basis remaining on line 11a,
subtract line 13, column D from line 13, column C, and
enter the result in column E.
Line 14. Reduce line 11a by the amounts on lines 12 and
13, column D, and enter on line 14.

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Line 7. Add lines 1, 2, 3e, 4o, 5, and 6.
Section B—Decreases

deduction item that’s disallowed is determined on a pro
rata basis.

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Lines 15a through 15t, column A. Enter the loss and
deduction amounts for each item as reported on your
Schedule K-1. See below for special line item instructions.
Line 15a, column A. Exclude BIE that was included in
reporting losses in box 1, 2, or 3 of Schedule K-1. BIE is
included as a separate loss class on line 15r.
Line 15i, column A. Include your share of the
partnership’s section 179 expense deduction for the year
even if you can’t deduct all of it due to limitations.

Line 15q, column A. Enter BIE reported in box 20, code
N, of Schedule K-1.
Note that BIE is a separate loss class under
Regulations section 1.163(j)-6(h)(1). To the extent basis is
proportionately allocated to this loss class (consisting of
lines 15n and 15q), interest expense is absorbed by
applying currently deductible BIE (line 15q) to basis first.
Once line 15q has been fully absorbed by basis, any
remaining basis proportionately allocated to the BIE class
is then absorbed by applying it to EBIE on line 15n. EBIE
is only applicable to partnerships subject to section 163(j).
BIE is a separate loss class whether or not the taxpayer is
subject to the section 163(j) limitation. See Regulations
sections 1.704-1(d)(2) and 1.163(j)-6(h)(1). If any of the
suspended loss consists of BIE, EBIE, or negative section
163(j) expense carryover (which will be reflected as EBIE
carryforward on line 15n, columns B (prior-year) and D
(current-year disallowed carryforward)), see the
Instructions for Form 8990, Limitation on Business Interest
Expense Under Section 163(j), regarding the allocation of
these three items.
Lines 15a through 15t, column B. Enter any prior-year
loss and deduction items suspended due to basis
limitations that were carried forward to the current tax
year.
Lines 15a through 15t, column C. Add each line,
column A and column B, and enter the amount in the
corresponding line of column C.
Lines 15a through 15t, column D. If Part II, line 14, is
zero, skip column D. If basis, as reported on Part II,
line 14, is greater than column C of line 15s, enter the
amount for each line in column C in column D. If basis as

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Note: This represents the amount of loss or deduction
items you’re allowed to report on your return from the
partnership this tax year, as limited by your basis. This
amount may not match the amount reported on your
current-year Schedule K-1.
Lines 15a through 15t, column E. For each line,
subtract column D from column C and enter the amount in
column E.
Line 16. Enter the amount from column D of line 15s.
Line 17. If you had unutilized EBIE and disposed of a
portion or all of your partnership interest, enter the
increase in basis on line 17. See Regulations section
1.163(j)-6(h)(3).
Line 18. Add lines 14, 16, and 17. This amount
represents your basis in your partnership interest at the
end of the year.
Basis adjustments computed in different manner
than specified in these instructions.
Section 961(a) adjusted basis increases. Your
adjusted basis may be increased under section 961(a) for
amounts that you’re required to include in income with
respect to a controlled foreign corporation (CFC) under
sections 951(a) (for example, subpart F income) and 951A
(global intangible low-taxed income (GILTI)) because
you’re a U.S. shareholder of the CFC and you own (within
the meaning of section 958(a)(2)) stock of the CFC
through the partnership. See the Partner’s Instructions for
Schedule K-3 for more information on sections 951(a) and
951A inclusions.
Section 961(b)(1) adjusted basis decreases. Your
adjusted basis may be decreased under section 961(b)(1)
by the sum of (a) the dollar basis in previously taxed
earnings and profits (PTEP) in your annual PTEP
accounts that you exclude from your gross income under
section 959(a) by reason of a distribution made to the
partnership, and (b) the dollar amount of any foreign
income taxes allowed as a credit under section 960(b)
with respect to such PTEP.

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Line 15n, column A. Enter excess business interest
expense (EBIE).

reported on Part II, line 14, is less than column C of
line 15s, enter the pro rata amount on the corresponding
line in column D. The total allocation amount reported in
column D of line 15s can’t exceed the amount report on
Part II, line 14.

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Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership
Part I—Partner Basis
1.

Adjusted basis at the beginning of the tax year. Don’t enter less than zero

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

1.

2.

Acquisitions of partnership interests and contributions of money and property

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

3a.

Partner’s share of liabilities at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a.

3b.

Partner’s share of liabilities at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b

3c.

Increase (decrease) in partnership liabilities (subtract line 3b from line 3a) . . . . . . . . . . . . . . . . 3c.

3d.

Partnership liabilities assumed during the tax year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3d.

3e.

Increase in liabilities (add lines 3c and 3d) (If amount is negative, enter on line 9a below.) . . . . . . . . . . . . . . . . . . . . .

4a.

Ordinary business income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4a.

4b.

Net rental real estate income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4b.

4c.

Other net rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c.

4d.

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4d.

4e.

Ordinary dividends

4f.

Dividend equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4f.

4g.

Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4g.

4h.

Net short-term capital gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4h.

4i.

Net long-term capital gain

4j.

Net section 1231 gain

4k.

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4k.

4l.

Tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4l.

4m.

Other increases to basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4m.

4n.

BIE (enter as a positive) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4n.

2.

3e.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4e.

DRAFT

DRAFT

Section A—Increases

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4i.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4j.

4o.

Total increases (add lines 4a through 4n)

5.

Gain recognized on contributions of property during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

4o.
5.

6.

Excess depletion adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7.

Total basis before decreases (add lines 1, 2, 3e, 4o, 5, and 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

Section B—Decreases (Enter as a negative.)
8.

Withdrawals, distributions of money, and the adjusted basis of distributed property

8a.

Cash and marketable securities distributed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a.

8b.

Distribution subject to section 737

8c.

Other property distributed

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8b.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8c.

8d.

Total distributions (add lines 8a through 8c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9a.

Decrease in partner’s share of liabilities (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9a.

9b.

Partner’s liabilities assumed by the partnership during the tax year . . . . . . . . . . . . . . . . . . . . . . 9b.

8d.

9c.

Decrease in liabilities (sum of lines 9a and 9b)

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

9c.

10.

Total distributions and decrease in liabilities (add lines 8d and 9c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.

11a. Basis after distributions (add lines 7 and 10) (If the result is negative, enter -0- on line 11a and enter the amount as a
positive on line 11b.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11a.

11b. Gain on distributions in excess of basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11b.

6

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

TREASURY/IRS AND OMB USE ONLY DRAFT

Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership
(continued)
Column A

Column B

Column C

Column D

Column E

Current-year
distributive
share

Prior-year
carryforward
amount

Total of
columns A
and B

Amount
reducing
basis (see
instructions)

Suspended
carryforward

12.

Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . .

13.

Depletion for oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.

Basis after nondeductible expenses and depletion (reduce line 11a by the amounts on lines 12 and 13,
column D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Column A

Column B

Column C

Column D

Column E

Current-year
distributive
share

Prior-year
carryforward
amount

Total of
columns A
and B

Allowable loss
and
deductions
(see
instructions)

Disallowed
loss
carryforward

DRAFT

DRAFT

Part II—Allowable Loss and Deduction Items (Enter as a
negative.)

15a. Ordinary business loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15b. Net rental real estate loss (excluding BIE) . . . . . . . . . . . . . .
15c. Other net rental loss (excluding BIE) . . . . . . . . . . . . . . . . . .
15d. Foreign taxes paid or accrued

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

15e. Net short-term capital loss . . . . . . . . . . . . . . . . . . . . . . . . .
15f. Net long-term capital loss . . . . . . . . . . . . . . . . . . . . . . . . . .
15g. Net section 1231 loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15h. Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15i. Section 179 deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Deductions
15j. Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . .
15k. Investment interest expense . . . . . . . . . . . . . . . . . . . . . . . .
15l. Deductions (royalty income) . . . . . . . . . . . . . . . . . . . . . . . .
15m. Section 59(e)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15n. EBIE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15o. Deductions—portfolio (other) . . . . . . . . . . . . . . . . . . . . . . .
15p. All other

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

15q. BIE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15r. Other decreases to basis . . . . . . . . . . . . . . . . . . . . . . . . . .
15s. Subtotal (add lines 15a through 15r) . . . . . . . . . . . . . . . . . .
15t. Total deductions and losses (add lines 15a through 15r, column C)

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

16.

Allowable deductions and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.

Unutilized EBIE on sale of partnership interest

18.

Adjusted basis at the end of the tax year (Enter the sum of lines 14, 16, and 17.) . . . . . . . . . . . . . . . . . . . . .

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

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

7

TREASURY/IRS AND OMB USE ONLY DRAFT
At-Risk Limitations

Section 465 provides rules that limit the deduction of
certain losses and deductions. These rules apply to
partners who are individuals, estates, trusts, and certain
closely held C corporations. Generally, if you have (a) a
loss or other deduction from any activity carried on as a
trade or business or for the production of income by the
partnership, and (b) amounts in the activity for which you
aren’t at risk, you’ll have to complete Form 6198, At-Risk
Limitations, to figure your allowable loss for the activity.

Generally, you aren’t at risk for amounts such as the
following.
• Nonrecourse loans used to finance the activity, to
acquire property used in the activity, or to acquire your
interest in the activity that aren’t secured by your own
property (other than the property used in the activity).
See the instructions for item K1, later, for the
exception for qualified nonrecourse financing secured
by real property.
• Cash, property, or borrowed amounts used in the
activity (or contributed to the activity, or used to
acquire your interest in the activity) that are protected
against loss by a guarantee, a stop-loss agreement, or
other similar arrangement (excluding casualty
insurance and insurance against tort liability).
• Amounts borrowed for use in the activity from a
person who has an interest in the activity, other than
as a creditor, or who is related, under section 465(b)
(3), to a person (other than you) having such an
interest.
You should get a separate statement of income,
expenses, and other items for each activity from the
partnership.
Note: Box 22 of Schedule K-1, Part III, will be checked
when a statement is attached.

Passive Activity Limitations

Section 469 provides rules that limit the deduction of
certain losses and credits. These rules apply to partners
who:
• Are individuals, estates, trusts, closely held C
corporations, or personal service corporations; and
• Have a passive activity loss or credit for the tax year.
Generally, passive activities include the following.

• Trade or business activities in which you didn’t
materially participate.

• Activities that meet the definition of rental activities

under Temporary Regulations section 1.469-1T(e)(3)
and Regulations section 1.469-1(e)(3).

8

1. Trade or business activities in which you materially
participated.
2. Rental real estate activities in which you materially
participated if you were a real estate professional for
the tax year. If you’re a real estate professional, in
determining whether you materially participated in a
rental real estate activity, each interest in rental real
estate is a separate activity, unless you elect to treat
all interests in rental real estate as one activity. For
details on making this election, see the Instructions
for Schedule E (Form 1040), Supplemental Income
and Loss.
You were a real estate professional only if you met
both of the following conditions.
a. More than half of the personal services you
performed in trades or businesses were
performed in real property trades or businesses in
which you materially participated.
b. You performed more than 750 hours of services in
real property trades or businesses in which you
materially participated.
Tip: For a closely held C corporation (defined in
section 465(a)(1)(B)), the above conditions are
treated as met if more than 50% of the corporation’s
gross receipts were from real property trades or
businesses in which the corporation materially
participated.
If you’re married filing jointly, either you or your
spouse must separately meet both (a) and (b) of the
above conditions, without taking into account services
performed by the other spouse.
A real property trade or business is any real
property development, redevelopment, construction,
reconstruction, acquisition, conversion, rental,
operation, management, leasing, or brokerage trade
or business. Services you performed as an employee
aren’t treated as performed in a real property trade or
business unless you owned more than 5% of the
stock (or more than 5% of the capital or profits
interest) in the employer.
3. Working interests in oil or gas wells if you were a
general partner.
4. The rental of a dwelling unit any partner used for
personal purposes during the year for more than the
greater of 14 days or 10% of the number of days that
the residence was rented at fair rental value.
5. Activities of trading personal property for the account
of owners of interests in the activities.
If you’re an individual, an estate, or a trust, and you
have a passive activity loss or credit, use Form 8582,
Passive Activity Loss Limitations, to figure your allowable
passive losses; and Form 8582-CR, Passive Activity
Credit Limitations, to figure your allowable passive credits.
For a corporation, use Form 8810, Corporate Passive
Activity Loss and Credit Limitations. See the instructions
for these forms for details.
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

DRAFT

DRAFT

The at-risk rules generally limit the amount of loss and
other deductions that you can claim to the amount you
could actually lose in the activity. These losses and
deductions include a loss on the disposition of assets and
the section 179 expense deduction. However, if you
acquired your partnership interest before 1987, the at-risk
rules don’t apply to losses from an activity of holding real
property placed in service before 1987 by the partnership.
The activity of holding mineral property doesn’t qualify for
this exception. The partnership should identify on a
statement attached to Schedule K-1 any losses that aren’t
subject to the at-risk limitations.

Passive activities don’t include the following.

TREASURY/IRS AND OMB USE ONLY DRAFT
If the partnership had more than one activity, it’ll attach
a statement to your Schedule K-1 that identifies each
activity (trade or business activity, rental real estate
activity, rental activity other than rental real estate, and
other activity) and specifies the income (loss), deductions,
and credits from each activity.

Material participation. You must determine if you
materially participated (a) in each trade or business
activity held through the partnership, and (b) if you were a
real estate professional (defined earlier) in each rental real
estate activity held through the partnership. All
determinations of material participation are based on your
participation during the partnership’s tax year.
Material participation standards for partners who are
individuals are listed below. Special rules apply to certain
retired or disabled farmers and to the surviving spouses of
farmers. See the Instructions for Form 8582 for details.
Corporations should refer to the Instructions for Form
8810 for the material participation standards that apply to
them.
Individuals (other than limited partners). If you’re
an individual (either a general partner or a limited partner
who owned a general partnership interest at all times
during the tax year), you materially participated in an
activity only if one or more of the following apply.
1. You participated in the activity for more than 500
hours during the tax year.
2. Your participation in the activity for the tax year
constituted substantially all the participation in the
activity of all individuals (including individuals who
aren’t owners of interests in the activity).
3. You participated in the activity for more than 100
hours during the tax year, and your participation in the
activity for the tax year wasn’t less than the
participation in the activity of any other individual
(including individuals who weren’t owners of interests
in the activity) for the tax year.
4. The activity was a significant participation activity for
the tax year, and you participated in all significant
participation activities (including activities outside the
partnership) during the year for more than 500 hours.
A significant participation activity is any trade or
business activity in which you participated for more
than 100 hours during the year and in which you didn’t
materially participate under any of the material
participation tests (other than this test).
5. You materially participated in the activity for any 5 tax
years (whether or not consecutive) during the 10 tax
years that immediately precede the tax year.
6. The activity was a personal service activity and you
materially participated in the activity for any 3 tax
years (whether or not consecutive) preceding the tax
year. A personal service activity involves the
performance of personal services in the field of
health, law, engineering, architecture, accounting,
actuarial science, performing arts, or consulting, or
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

7. Based on all the facts and circumstances, you
participated in the activity on a regular, continuous,
and substantial basis during the tax year.
Limited partners. If you’re a limited partner, you must
meet item 1, 5, or 6 above to qualify as having materially
participated.
Work counted toward material participation.
Generally, any work that you or your spouse does in
connection with an activity held through a partnership
(where you own your partnership interest at the time the
work is done) is counted toward material participation.
However, work in connection with the activity isn’t counted
toward material participation if either of the following
applies.
1. The work isn’t the type of work that owners of the
activity would usually do and one of the principal
purposes of the work that you or your spouse does is
to avoid the passive loss or credit limitations.
2. You do the work in your capacity as an investor and
you aren’t directly involved in the day-to-day
operations of the activity. Examples of work done as
an investor that would not count toward material
participation include:

DRAFT

DRAFT

Note: Box 23 of Schedule K-1, Part III, will be checked
when a statement is attached.

any other trade or business in which capital isn’t a
material income-producing factor.

a. Studying and reviewing financial statements or
reports on operations of the activity,
b. Preparing or compiling summaries or analyses of
the finances or operations of the activity for your
own use, and
c. Monitoring the finances or operations of the
activity in a non-managerial capacity.
Effect of determination. Income (loss), deductions,
and credits from an activity are nonpassive if you
determine that:
• You materially participated in a trade or business
activity of the partnership, or
• You were a real estate professional (defined earlier)
and materially participated in a rental real estate
activity of the partnership.
If you determine that you didn’t materially participate in
a trade or business activity of the partnership or if you
have income (loss), deductions, or credits from a rental
activity of the partnership (other than a rental real estate
activity in which you materially participated as a real
estate professional), the amounts from that activity are
passive. Report passive income (losses), deductions, and
credits as follows.
• If you have an overall gain (the excess of income over
deductions and losses, including any prior-year
unallowed loss) from a passive activity, report the
income, deductions, and losses from the activity as
indicated in these instructions.
• If you have an overall loss (the excess of deductions
and losses, including any prior-year unallowed loss,
over income) or credits from a passive activity, report
the income, deductions, losses, and credits from all
passive activities using the Instructions for Form 8582
or the Instructions for Form 8582-CR (or Form 8810)
9

TREASURY/IRS AND OMB USE ONLY DRAFT
to see if your deductions, losses, and credits are
limited under the passive activity rules.

1. Combine any current-year income, gains, and losses,
and any prior-year unallowed losses to see if you have
an overall gain or loss from the PTP. Include only the
same types of income and losses you would include
in your net income or loss from a non-PTP passive
activity. See Pub. 925, Passive Activity and At-Risk
Rules, for more details.
2. If you have an overall gain, the net gain portion (total
gain minus total losses) is nonpassive income. On the
form or schedule you normally use, report the net gain
portion as nonpassive income and the remaining
income and the total losses as passive income and
loss. To the left of the entry space, enter “From PTP.”
It’s important to identify the nonpassive income
because the nonpassive portion is included in
modified adjusted gross income (MAGI) for purposes
of figuring on Form 8582 the special allowance for
active participation in a non-PTP rental real estate
activity. In addition, the nonpassive income is included
in investment income when figuring your investment
interest expense deduction on Form 4952, Investment
Interest Expense Deduction.
Example. If you have Schedule E (Form 1040)
income of $8,000, and a Form 4797, Sales of
Business Property, prior-year unallowed loss of
$3,500 from the passive activities of a particular PTP,
you have a $4,500 overall gain ($8,000 − $3,500). On
Schedule E (Form 1040), line 28, report the $4,500
net gain as nonpassive income in column (k). In
column (h), report the remaining Schedule E (Form
1040) gain of $3,500 ($8,000 − $4,500). On the
appropriate line of Form 4797, report the prior-year
unallowed loss of $3,500. Be sure to enter “From
PTP” to the left of each entry space.
3. If you have an overall loss (but didn’t dispose of your
entire interest in the PTP to an unrelated person in a
fully taxable transaction during the year), the losses
are allowed to the extent of the income, and the
excess loss is carried forward to use in a future year
10

Example. You have a Schedule E (Form 1040)
loss of $12,000 (current-year losses plus prior-year
unallowed losses) and a Form 4797 gain of $7,200.
Report the $7,200 gain on the appropriate line of
Form 4797. On Schedule E (Form 1040), line 28,
report $7,200 of the losses as a passive loss in
column (g). Carry forward the unallowed loss of
$4,800 ($12,000 − $7,200).
If you have unallowed losses from more than one
activity of the PTP or from the same activity of the
PTP that must be reported on different forms, you
must allocate the unallowed losses on a pro rata basis
to figure the amount allowed from each activity or on
each form.
Tip: To allocate and keep a record of the unallowed
losses, use Form 8582, Parts VII, VIII, and IX. List
each activity of the PTP in Part VII. Enter the overall
loss from each activity in column (a). Complete
column (b) of Part VII according to its instructions.
Multiply the total unallowed loss from the PTP by each
ratio in column (b) and enter the result in column (c).
Then, complete Part VIII if all the loss from the same
activity is to be reported on one form or schedule. Use
Part IX instead of Part VIII if you have more than one
loss to be reported on different forms or schedules for
the same activity. Enter the net loss plus any
prior-year unallowed losses in column (a) of Part VIII
(or Part IX, if applicable). The losses in column (c) of
Part VIII (column (e) of Part IX) are the allowed losses
to report on the forms or schedules. Report both
these losses and any income from the PTP on the
forms and schedules you normally use.
4. If you have an overall loss and you disposed of your
entire interest in the PTP to an unrelated person in a
fully taxable transaction during the year, your losses
(including prior-year unallowed losses) allocable to
the activity for the year aren’t limited by the passive
loss rules. A fully taxable transaction is one in which
you recognize all your realized gain or loss. Report the
income and losses on the forms and schedules you
normally use.
Tip: For rules on the disposition of an entire interest
reported using the installment method, see the
Instructions for Form 8582.
Special allowance for a rental real estate activity. If
you actively participated in a rental real estate activity, you
may be able to deduct up to $25,000 of the loss from the
activity from nonpassive income. This special allowance is
an exception to the general rule disallowing losses in
excess of income from passive activities. The special
allowance isn’t available if you were married, file a
separate return for the year, and didn’t live apart from your
spouse at all times during the year.
Only individuals, qualifying estates, and qualifying
revocable trusts that made a section 645 election can
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

DRAFT

DRAFT

Publicly traded partnerships (PTPs). The passive
activity limitations are applied separately for items (other
than the low-income housing credit and the rehabilitation
credit) from each PTP. Thus, a net passive loss from a
PTP may not be deducted from other passive income.
Instead, a passive loss from a PTP is suspended and
carried forward to be applied against passive income from
the same PTP in later years. See item 4, later, regarding a
partner’s disposal of the partner’s entire interest in the
PTP.
If you have an overall gain from a PTP, the net gain is
nonpassive income. In addition, the nonpassive income is
included in investment income to figure your investment
interest expense deduction.
Don’t report passive income, gains, or losses from a
PTP on Form 8582. Instead, use the following rules to
figure and report on the proper form or schedule your
income, gains, and losses from passive activities that you
held through each PTP you owned during the tax year.

when you have income to offset it. Report as a
passive loss on the schedule or form you normally use
the portion of the loss equal to the income. Report the
income as passive income on the form or schedule
you normally use.

actively participate in a rental real estate activity. Estates
(other than qualifying estates), trusts (other than qualifying
revocable trusts that made a section 645 election), and
corporations can’t actively participate. Limited partners
can’t actively participate unless future regulations provide
an exception.
You aren’t considered to actively participate in a rental
real estate activity if, at any time during the tax year, your
interest (including your spouse’s interest) in the activity
was less than 10% (by value) of all interests in the activity.
Active participation is a less stringent requirement than
material participation. You may be treated as actively
participating if you participated, for example, in making
management decisions or arranging for others to provide
services (such as repairs) in a significant and bona fide
sense. Management decisions that can count as active
participation include approving new tenants, deciding
rental terms, approving capital or repair expenditures, and
other similar decisions.
An estate is a qualifying estate if the decedent would
have satisfied the active participation requirement for the
activity for the tax year the decedent died. A qualifying
estate is treated as actively participating for tax years
ending less than 2 years after the date of the decedent’s
death.
Modified adjusted gross income (MAGI) limitation.
The maximum special allowance that single individuals
and married individuals filing a joint return can qualify for
is $25,000. The maximum is $12,500 for married
individuals who file separate returns and who lived apart
at all times during the year. The maximum special
allowance for which an estate can qualify is $25,000
reduced by the special allowance for which the surviving
spouse qualifies.
If your MAGI is $100,000 or less ($50,000 or less if
married filing separately), your loss is deductible up to the
maximum special allowance referred to in the preceding
paragraph. If your MAGI is more than $100,000 (more
than $50,000 if married filing separately), the special
allowance is limited to 50% of the difference between
$150,000 ($75,000 if married filing separately) and your
MAGI. When MAGI is $150,000 or more ($75,000 or more
if married filing separately), there is no special allowance.
MAGI. For a definition of MAGI, see Special $25,000
allowance in Pub. 925. Also see Line 6 in the Instructions
for Form 8582.
Special rules for certain other activities. If you have
net income (loss), deductions, or credits from any activity
to which special rules apply, the partnership will identify
the activity and all amounts relating to it on Schedule K-1
or on an attached statement.
If you have net income subject to recharacterization
under Temporary Regulations section 1.469-2T(f) and
Regulations sections 1.469-2(f)(5) and (6), report such
amounts according to the Instructions for Form 8582 (or
Form 8810).
If you have net income (loss), deductions, or credits
from any of the following activities, treat such amounts as
nonpassive and report them as indicated in these
instructions.

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

1. Working interests in oil and gas wells if you’re a
general partner.
2. The rental of a dwelling unit any partner used for
personal purposes during the year for more than the
greater of 14 days or 10% of the number of days that
the residence was rented at fair rental value.
3. Trading personal property for the account of owners of
interests in the activity.
Self-charged interest. The partnership will report any
self-charged interest income or expense that resulted from
loans between you and the partnership (or between the
partnership and another partnership or S corporation if
both entities have the same owners with the same
proportional ownership interest in each entity). If there was
more than one activity, the partnership will provide a
statement allocating the interest income or expense with
respect to each activity. The self-charged interest rules
don’t apply to your partnership interest if the partnership
made an election under Regulations section 1.469-7(g) to
avoid the application of these rules. See the Instructions
for Form 8582 for details.

Excess Business Loss

Your distributive share of losses attributable to all of the
partnership’s trades or businesses may be limited under
section 461(l). See Form 461, Limitation on Business
Losses, and its instructions for more information.

Specific Instructions
Part I. Information About the
Partnership
Item D

If the box in item D is checked, you’re a partner in a PTP
and must follow the rules discussed earlier under Publicly
traded partnerships.

Part II. Information About the Partner
Item E

If the partner is an individual, the partnership will enter the
partner’s SSN or individual taxpayer identification number
(ITIN). For all other partners, the partnership will enter the
partner’s employer identification number (EIN). In the case
of a disregarded entity (DE), the partnership will enter the
TIN of the beneficial owner of the DE in item E and the
beneficial owner’s address in item F.

If the partner is an IRA, the partnership will enter the
identifying number of the custodian of the IRA.
For your protection, this form may show only the last
four digits of the TIN in items E and H2, as noted under
Purpose of Schedule K-1, earlier. However, the
partnership has reported your complete identification
number to the IRS.

Item H2

If the partner is a DE, such as a single-member LLC that
didn’t elect to be treated as a corporation, the partnership
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will check the “DE” box and enter the name and TIN of the
DE.

Item J

Generally, the amounts reported in item J are based on
the partnership agreement. If your interest commenced
after the beginning of the partnership’s tax year, the
partnership will have entered, in the “Beginning” column,
the percentages that existed for you immediately after
admission. If your interest terminated before the end of the
partnership’s tax year, the partnership will have entered, in
the “Ending” column, the percentages that existed
immediately before termination.

There are two options the partnership can use to
indicate the source of a decrease: sale or exchange. The
“Sale” checkbox will be checked if you sold all or part of
your partnership interest to a new or pre-existing partner
during this tax year, regardless of whether you recognized
gain or loss on the transaction(s). The “Exchange”
checkbox will be checked if you exchanged all or part of
your partnership interest with a new or pre-existing partner
during this tax year, regardless of whether you recognized
gain or loss on the transaction(s). You may have realized a
gain or loss on the transfer or disposition of your interest.
See codes AB, AC, and AD under Box 20, later, for items
that have special gain or loss treatment. For more
information, see Disposition of Partner’s Interest and
Partnership Distributions in Pub. 541.

Item K1

Item K1 should show your share of the partnership’s
nonrecourse liabilities, partnership-level qualified
nonrecourse financing, and other recourse liabilities at the
beginning and the end of the partnership’s tax year. If you
terminated your interest in the partnership during the tax
year, item K1 should show the share that existed
immediately before the total disposition. A partner’s
recourse liability is any partnership liability for which a
partner is personally liable.
If this partnership invested in other partnerships, item
K1 will include your share of partnership liabilities from
those other partnerships, except to the extent the liabilities
from those other partnerships are owed to this
partnership.
Use the total of the three amounts for figuring the
adjusted basis of your partnership interest.
Generally, you may use only the amounts shown next to
“Qualified nonrecourse financing” and “Recourse” to figure
your amount at risk. Don’t include any amounts that aren’t
at risk if such amounts are included in either of these
categories.
If your partnership is engaged in two or more different
types of activities subject to the at-risk provisions, or a
combination of at-risk activities and any other activity, the
partnership should give you a statement showing your
12

Qualified nonrecourse financing secured by real
property used in an activity of holding real property that’s
subject to the at-risk rules is treated as an amount at risk.
Qualified nonrecourse financing generally includes
financing for which no one is personally liable for
repayment that’s borrowed for use in an activity of holding
real property and that’s loaned or guaranteed by a federal,
state, or local government or borrowed from a qualified
person.
Qualified persons include any persons actively and
regularly engaged in the business of lending money, such
as a bank or savings and loan association. Qualified
persons generally don’t include related parties (unless the
nonrecourse financing is commercially reasonable and on
substantially the same terms as loans involving unrelated
persons), the seller of the property, or a person who
receives a fee for the partnership’s investment in the real
property.
See Pub. 925 for more information on qualified
nonrecourse financing.
Both the partnership and you must meet the qualified
nonrecourse rules on this debt before you can include the
amount shown next to “Qualified nonrecourse financing” in
your at-risk computation.
See Limitations on Losses, Deductions, and Credits,
earlier, for more information on the at-risk limitations.

Item K3

If the box in item K3 is checked, see the instructions for
box 20, code X, for additional information.

Item L

The partnership must report your beginning capital
account and ending capital account for the year using the
tax-basis method, including the amount of capital you
contributed to the partnership during the year, your share
of the partnership’s current-year net income or loss as
computed for tax purposes, any withdrawals and
distributions made to you by the partnership, and any
other increases or decreases to your capital account
determined in a manner generally consistent with figuring
the partner’s adjusted tax basis in its partnership interest
(without regard to partnership liabilities), taking into
account the rules and principles of sections 705, 722, 733,
and 742. See the Instructions for Form 1065 for more
details.
For many reasons, your ending capital account as
reported to you by the partnership in item L may not equal
the adjusted tax basis in your partnership interest.
Generally, this is because a partner’s adjusted tax basis in
its partnership interest includes the partner’s share of
partnership liabilities (whereas capital accounts
determined by using the tax-basis method don’t include
the partner’s share of partnership liabilities). In addition,
your partnership may not have all the necessary
information from you to accurately figure the adjusted tax
basis in your partnership interest due to partner-level
adjustments. You’re responsible for maintaining an annual
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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The ending percentage share shown on the “Capital”
line is the portion of the capital you would receive if the
partnership was liquidated at the end of its tax year by the
distribution of undivided interests in the partnership’s
assets and liabilities. If your capital account is negative or
zero, the partnership will have entered zero on this line.

share of nonrecourse liabilities, partnership-level qualified
nonrecourse financing, and other recourse liabilities for
each activity.

TREASURY/IRS AND OMB USE ONLY DRAFT
record of the adjusted tax basis in your partnership
interest as determined under the principles and provisions
of subchapter K, including, for example, those under
sections 705, 722, 733, and 742. Regulations section
1.705-1(a)(1) provides that a partner is required to
determine the adjusted basis of its interest in a
partnership when necessary to determine its tax liability or
that of any other person. For example, a determination is
required in ascertaining the extent to which a partner’s
share of loss is allowed, when there is a sale or exchange
of all or part of a partnership interest, and when a partner’s
entire partnership interest is liquidated. The adjusted
basis of a partner’s interest in a partnership is determined
without regard to any amount shown in the partnership
books as the partner’s capital, equity, or similar account.
If you’ve contributed property with a built-in gain or loss
during the tax year, the partnership will check “Yes.” Also,
the partnership will attach a statement showing the
property contributed, the date of the contribution, and the
amount of any built-in gain or loss. A built-in gain or loss is
the difference between the FMV of the property and your
adjusted basis in the property at the time it was
contributed to the partnership. If you contributed more
than 10 properties on a single date during the tax year, the
statement may instead show the number of properties
contributed on that date, the total amount of built-in gain,
and the total amount of built-in loss.
The partnership is providing this for your information.
Contributions of property with a built-in gain or loss could
affect a partner’s tax liability (in matters concerning
precontribution gain or loss, and distributions subject to
section 737) and may also affect how the partnership
allocated certain items on your Schedule K-1. For
information on precontribution gain or loss, see the
instructions for box 20, code W. For information on
distributions subject to section 737, see the instructions
for box 19, code B.

Item N

If you’re allocated a share of section 704(c) gain or loss,
the partnership will report your net unrecognized section
704(c) gain or loss both at the beginning and at the end of
the partnership’s tax year in item N. The partnership can
use any reasonable method in reporting net unrecognized
section 704(c) built-in gain or loss to you. You’ll be
allocated unrecognized section 704(c) gain or loss if:
• You contributed property with FMV in excess of
adjusted tax basis (built-in gain property);
• You contributed property with FMV less than adjusted
tax basis (built-in loss property); or
• The partnership elected, under certain circumstances,
to revalue property (book-up or book-down) on its
books to reflect changes in the FMV of such property.
These revaluations are sometimes referred to as
“reverse section 704(c) allocations.”
The partnership is providing this for your information. If
the partnership disposes of the property or there are
special allocations due to depreciation, depletion, or
amortization, the partnership will report these items on
other parts of Schedule K-1.
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Part III. Partner’s Share of Current
Year Income, Deductions, Credits,
and Other Items

The amounts shown in boxes 1 through 21 reflect your
share of income, loss, deductions, credits, and other items
from partnership business or rental activities without
reference to limitations on losses or adjustments that may
be required of you because of:
1. The adjusted basis of your partnership interest,
2. The amount for which you’re at risk,
3. The passive activity limitations, and
4. The excess business loss limitations.

For information on these provisions, see Limitations on
Losses, Deductions, and Credits, earlier.
Other limitations may apply to specific deductions (for
example, the section 179 expense deduction). Generally,
specific limitations apply before the at-risk, passive loss,
and excess business loss limitations.
If you’re an individual and the passive activity rules
don’t apply to the amounts shown on your Schedule K-1,
take the amounts shown and enter them on the
appropriate lines of your tax return. If the passive activity
rules do apply, report the amounts shown as indicated in
these instructions.
If you aren’t an individual, report the amounts in each
box as instructed on your tax return.
If you file your tax return on a calendar-year basis, but
your partnership files a return for a fiscal year, report the
amounts on your tax return for the year in which the
partnership’s fiscal year ends. For example, if the
partnership’s tax year ends in February 2026, report the
amounts on your 2026 tax return.
If you have losses, deductions, or credits from a prior
year that weren’t deductible or usable because of certain
limitations, such as the basis limitations or the at-risk
limitations, take them into account in determining your net
income, loss, or credits for this year. However, except for
passive activity losses and credits, don’t combine the
prior-year amounts with any amounts shown on this
Schedule K-1 to get a net figure to report on any
supporting schedules, statements, or forms attached to
your return. Instead, report the amounts on the attached
schedule, statement, or form on a year-by-year basis.
Section 743(b) adjustments. If the partnership
reports a section 743(b) adjustment to partnership items,
report these adjustments as separate items on Form 1040
or 1040-SR in accordance with the reporting instructions
for the partnership item being adjusted. A section 743(b)
adjustment increases or decreases your share of income,
deduction, gain, or loss for a partnership item. For
example, if the partnership reports a section 743(b)
adjustment to depreciation for property used in its trade or
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Item M

Note: Although the partnership is reporting the beginning
and ending balances on an aggregate net basis, it’s
generally required to keep records of this information on a
property-by-property basis.

TREASURY/IRS AND OMB USE ONLY DRAFT
business, report the adjustment on Schedule E (Form
1040), line 28, in accordance with the instructions for
box 1 of Schedule K-1.
Tip: If you’re required to file Schedule E (Form 1040) and
receive a Schedule K-1 from multiple partnerships, report
items from each partnership’s Schedule K-1 on a separate
line 28 of Schedule E.
Codes. In box 11, boxes 13 through 15, and boxes 17
through 20, the partnership will identify each item by
entering a code in the column to the left of the dollar
amount entry space. These codes are identified under List
of Codes for Schedule K-1 (Form 1065) at the end of
these instructions.

Income (Loss)
Box 1. Ordinary Business Income (Loss)

The amount reported in box 1 is your share of the ordinary
income (loss) from trade or business activities of the
partnership. Generally, where you report this amount on
Form 1040 or 1040-SR depends on whether the amount is
from an activity that’s a passive activity to you. If you’re an
individual partner filing a 2025 Form 1040 or 1040-SR,
find your situation below and report your box 1 income
(loss) as instructed, after applying the basis and at-risk
limitations on losses. If the partnership had more than one
trade or business activity, it will attach a statement
identifying the income or loss from each activity.
1. Report box 1 income (loss) from partnership trade or
business activities in which you materially participated
in column (i) or (k) of Schedule E (Form 1040),
line 28.
2. Report box 1 income (loss) from partnership trade or
business activities in which you didn’t materially
participate, as follows.
a. If income is reported in box 1, report the income in
column (h) of Schedule E (Form 1040), line 28.
However, if the box in item D is checked, report
the income following the rules for PTPs under
Publicly traded partnerships, earlier.
b. If a loss is reported in box 1, follow the Instructions
for Form 8582 to figure how much of the loss can
be reported in column (g) of Schedule E (Form
1040), line 28. However, if the box in item D is
checked, report the loss following the rules for
PTPs under Publicly traded partnerships, earlier.

Box 2. Net Rental Real Estate Income (Loss)

Generally, the income (loss) reported in box 2 is a passive
activity amount for all partners. However, the income
14

If you’re filing a 2025 Form 1040 or 1040-SR, use the
following instructions to determine where to report a box 2
amount.
1. If you have a loss from a passive activity in box 2 and
you meet all the following conditions, report the loss in
column (g) of Schedule E (Form 1040), line 28.
a. You actively participated in the partnership rental
real estate activities. See Special allowance for a
rental real estate activity, earlier.
b. Rental real estate activities with active
participation were your only passive activities.
c. You have no prior-year unallowed losses from
these activities.
d. Your total loss from the rental real estate activities
wasn’t more than $25,000 (not more than $12,500
if married filing separately and you lived apart from
your spouse all year).
e. If you’re a married person filing separately, you
lived apart from your spouse all year.
f. You have no current- or prior-year unallowed
credits from a passive activity.
g. Your MAGI wasn’t more than $100,000 (not more
than $50,000 if married filing separately and you
lived apart from your spouse all year).
h. Your interest in the rental real estate activity wasn’t
held as a limited partner.
2. If you have a loss from a passive activity in box 2 and
you don’t meet all the conditions in (1) above, follow
the Instructions for Form 8582 to figure how much of
the loss you can report in column (g) of Schedule E
(Form 1040), line 28. However, if the box in item D is
checked, report the loss following the rules for PTPs
under Publicly traded partnerships, earlier.
3. If you were a real estate professional and you
materially participated in the activity, report box 2
income (loss) in column (i) or (k) of Schedule E (Form
1040), line 28.
4. If you have income from a passive activity in box 2,
report the income in column (h) of Schedule E (Form
1040), line 28. However, if the box in item D is
checked, report the income following the rules for
PTPs under Publicly traded partnerships, earlier.

Box 3. Other Net Rental Income (Loss)

The amount in box 3 is a passive activity amount for all
partners. If the partnership had more than one rental
activity, it’ll attach a statement identifying the income or
loss from each activity. Report the income or loss as
follows.
• If box 3 is a loss, follow the Instructions for Form 8582
to figure how much of the loss can be reported in
column (g) of Schedule E (Form 1040), line 28.
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Attached statements. The partnership will enter an
asterisk (*) after the code, if any, in the column to the left of
the dollar amount entry space for each item for which it
has attached a statement providing additional information.
For those informational items that can’t be reported as a
single dollar amount, the partnership will enter an asterisk
(*) in the left column and enter “STMT” in the dollar
amount entry space to indicate the information is provided
on an attached statement.

(loss) in box 2 isn’t from a passive activity if you were a
real estate professional (defined earlier) and you
materially participated in the activity. If the partnership had
more than one rental real estate activity, it’ll attach a
statement identifying the income or loss from each activity.

TREASURY/IRS AND OMB USE ONLY DRAFT
•

However, if the box in item D is checked, report the
loss following the rules for PTPs under Publicly traded
partnerships, earlier.
If income is reported in box 3, report the income in
column (h) of Schedule E (Form 1040), line 28.
However, if the box in item D is checked, report the
income following the rules for PTPs under Publicly
traded partnerships, earlier.

Box 4a. Guaranteed Payments for Services

Guaranteed payments are payments made by a
partnership to a partner that are determined without
regard to the partnership’s income. Generally, amounts on
this line aren’t passive income, and you should report
them in column (k) of Schedule E (Form 1040), line 28 (for
example, guaranteed payments for personal services).

Box 4b. Guaranteed Payments for Capital

Box 4c. Total Guaranteed Payments

Amounts on this line include total guaranteed payments
paid to you by the partnership.

Box 6b. Qualified Dividends

Report any qualified dividends on Form 1040 or 1040-SR,
line 3a.
Some of the amounts reported in this box may be
attributable to PTEP in annual PTEP accounts that you
have with respect to a foreign corporation and are
therefore excludable from your gross income. Don’t
include the amount attributable to PTEP in your annual
PTEP accounts on Form 1040 or 1040-SR, line 3a. Use
Schedule K-3, Part V, to determine your share of
distributions by foreign corporations to the partnership that
are attributable to PTEP in your annual PTEP accounts
with respect to the foreign corporations.
Tip: Qualified dividends are excluded from investment
income, but you may elect to include part or all of these
amounts in investment income. See the instructions for
Form 4952, line 4g, for important information on making
this election.
Caution: If you have any foreign source qualified
dividends, see the Partner’s Instructions for Schedule K-3
for additional information.

Portfolio income or loss (shown in boxes 5 through 9b and
in box 11, code A) isn’t subject to the passive activity
limitations. Portfolio income includes income (not derived
in the ordinary course of a trade or business) from
interest, ordinary dividends, annuities or royalties, and
gain or loss on the sale of property that produces such
income or is held for investment.

The partnership attached a statement to the
Schedule K-1 identifying the dividends included in box 6a
or 6b that are:
• Eligible for the deduction for dividends received under
section 243(a), (b), or (c);
• Eligible for the deduction for dividends received under
section 245;
• Eligible for the deduction for dividends received under
section 245A; and
• Hybrid dividends as defined in section 245A(e)(4).

Box 5. Interest Income

Box 6c. Dividend Equivalents

Portfolio Income

Report interest income on Form 1040 or 1040-SR, line 2b.
If the amount of interest income included in box 5 includes
interest from the credit for holders of clean renewable
energy bonds, the partnership will attach a statement to
Schedule K-1 showing your share of interest income from
these credits. Because the basis of your interest in the
partnership has been increased by your share of the
interest income from these credits, you must reduce your
basis by the same amount. See the line 4d instructions for
the Worksheet for Adjusting the Basis of a Partner’s
Interest in the Partnership.

Dividend equivalents aren’t reported on Form 1040 or
1040-SR. This information is provided for persons that
aren’t U.S. persons, who are generally required to treat
dividend equivalents as U.S. source dividends, and
domestic partnerships with partners who may need this
information. The ordinary dividends amount in box 6a
doesn’t include the amount of dividend equivalents.

Box 6a. Ordinary Dividends

Report the net short-term capital gain (loss) on
Schedule D (Form 1040), line 5.

Report ordinary dividends on Form 1040 or 1040-SR,
line 3b.
Some of the amounts reported in this box may be
attributable to PTEP in annual PTEP accounts that you
have with respect to a foreign corporation and are
therefore excludable from your gross income. Don’t
include the amount attributable to PTEP in your annual
PTEP accounts on Form 1040 or 1040-SR, line 3b. Use
Schedule K-3, Part V, to determine your share of
distributions by foreign corporations to the partnership that

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Box 7. Royalties

Report royalties on Schedule E (Form 1040), line 4.

Box 8. Net Short-Term Capital Gain (Loss)

Box 9a. Net Long-Term Capital Gain (Loss)

Report the net long-term capital gain (loss) on Schedule D
(Form 1040), line 12.

Caution: If you have any foreign source net long-term
capital gain (loss), see the Partner’s Instructions for
Schedule K-3 for additional information.
Caution: The information reported in boxes 9b and 9c
relates to collectibles (28%) gain (loss) and unrecaptured
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These are guaranteed payments other than for services,
such as for the use of capital or attributable to section
736(a)(2) payments for unrealized receivables or goodwill.
Amounts on this line should be reported in column (k) of
Schedule E (Form 1040), line 28 (for example, guaranteed
payments for capital).

are attributable to PTEP in your annual PTEP accounts
with respect to the foreign corporations.

TREASURY/IRS AND OMB USE ONLY DRAFT
section 1250 gain flowing through the partnership. If you
sold an interest in the partnership, separate amounts of
collectibles (28%) gain and unrecaptured section 1250
gain may be reported in box 20, under codes AC and AD.

Box 9b. Collectibles (28%) Gain (Loss)

Report collectibles gain or loss on line 4 of the 28% Rate
Gain Worksheet—Line 18 in the Instructions for
Schedule D (Form 1040).

Caution: If you have any foreign source collectibles
(28%) gain (loss), see the Partner’s Instructions for
Schedule K-3 for additional information.
There are three types of unrecaptured section 1250 gain.
Report your share of this unrecaptured gain on the
Unrecaptured Section 1250 Gain Worksheet—Line 19 in
the Instructions for Schedule D (Form 1040) as follows.
• Report unrecaptured section 1250 gain from the sale
or exchange of the partnership’s business assets on
line 5.
• Report unrecaptured section 1250 gain from the sale
or exchange of an interest in a partnership on line 10.
• Report unrecaptured section 1250 gain from an
estate, trust, regulated investment company (RIC), or
real estate investment trust (REIT) on line 11.
If the partnership reports only unrecaptured section
1250 gain from the sale or exchange of its business
assets, it’ll enter a dollar amount in box 9c. If it reports the
other two types of unrecaptured gain, it’ll provide an
attached statement that shows the amount for each type
of unrecaptured section 1250 gain.
Caution: If you have any foreign source unrecaptured
section 1250 gain, see the Partner’s Instructions for
Schedule K-3 for additional information.

Box 10. Net Section 1231 Gain (Loss)

The amount in box 10 is generally passive if it’s from a:
• Rental activity, or
• Trade or business activity in which you didn’t
materially participate.
However, an amount from a rental real estate activity
isn’t from a passive activity if you were a real estate
professional (defined earlier) and you materially
participated in the activity.
If the amount is either (a) a loss that isn’t from a passive
activity or (b) a gain, report it in column (g) of Form 4797,
line 2. Don’t complete columns (b) through (f) of Form
4797, line 2. Instead, enter “From Schedule K-1 (Form
1065)” across these columns.
If the amount is a loss from a passive activity, see
Passive Loss Limitations in the Instructions for Form 4797.
Report the loss following the Instructions for Form 8582 to
figure how much of the loss is allowed on Form 4797.
However, if the box in item D of Schedule K-1 is checked,
report the loss following the rules for PTPs under Publicly
traded partnerships, earlier. If the partnership had net
section 1231 gain (loss) from more than one activity, it’ll
attach a statement that will identify the section 1231 gain
(loss) from each activity.
16

Box 11. Other Income (Loss)
Code A. Other portfolio income (loss). The
partnership will report portfolio income other than interest,
ordinary dividend, royalty, and capital gain (loss) income,
and attach a statement to tell you what kind of portfolio
income is reported.
If the partnership held a residual interest in a real estate
mortgage investment conduit (REMIC), it’ll report on the
statement your share of REMIC taxable income (net loss)
that you report in column (d) of Schedule E (Form 1040),
line 38. The statement will also report your share of any
excess inclusion that you report in column (c) of
Schedule E (Form 1040), line 38, and your share of
section 212 expenses that you report in column (e) of
Schedule E (Form 1040), line 38.
Code B. Involuntary conversions. This is your net gain
(loss) from involuntary conversions due to casualty or
theft. The partnership will give you a statement that shows
the amounts to be reported in columns (b)(i), (b)(ii), and
(c) of Form 4684, Casualties and Thefts, Part II, line 34.
If there was a gain (loss) from a casualty or theft to
property not used in a trade or business or for
income-producing purposes, the partnership will provide
you with the information you need to complete Form 4684.
Code C. Section 1256 contracts and straddles. The
partnership will report any net gain or loss from section
1256 contracts. Report this amount on Form 6781, Gains
and Losses From Section 1256 Contracts and Straddles.
Code D. Mining exploration costs recapture. The
partnership will give you a statement that shows the
information needed to recapture certain mining
exploration costs (section 617). See the 2022 Pub. 535,
Business Expenses, available at IRS.gov/pub/irs-prior/
p535--2022.pdf, for details.
Code E. Cancellation of debt. Generally, this
cancellation of debt (COD) amount is included in your
gross income (Schedule 1 (Form 1040), line 8c). Under
section 108(b)(5), you may elect to apply any portion of
the COD amount excluded from gross income to the
reduction of the basis of depreciable property. See Form
982, Reduction of Tax Attributes Due to Discharge of
Indebtedness, for more details.
Code F. Section 743(b) positive income adjustments.
The partnership will use this code to report the net positive
income adjustment resulting from all section 743(b) basis
adjustments. The partnership will provide your section
743(b) adjustment net of cost recovery at year end by
asset grouping in box 20, code U. See Section 743(b)
adjustments, earlier.
Codes G and H. Reserved for future use.
Code I. Gain (loss) from disposition of oil, gas, geothermal, or other mineral properties (section 59(e)).
The partnership will attach a statement that provides a
description of the property; your share of the amount
realized from the disposition; your share of the
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Box 9c. Unrecaptured Section 1250 Gain

Caution: If you have any foreign source net section 1231
gain (loss), see the Partner’s Instructions for Schedule K-3
for additional information.

TREASURY/IRS AND OMB USE ONLY DRAFT
partnership’s adjusted basis in the property (for other than
oil or gas properties); and your share of the total intangible
drilling costs, development costs, and mining exploration
costs (section 59(e) expenditures) passed through for the
property. You must figure your gain or loss from the
disposition by increasing your share of the adjusted basis
by the intangible drilling costs, development costs, or mine
exploration costs for the property that you capitalized (that
is, costs that you didn’t elect to deduct under section
59(e)). Report a loss in Form 4797, Part I. Report a gain in
Form 4797, Part III, in accordance with the instructions for
Form 4797, line 28. See Regulations section 1.1254-5 for
details.

Code K. Gambling gains and losses. If the partnership
wasn’t engaged in the trade or business of gambling, (a)
report gambling winnings on Schedule 1 (Form 1040),
line 8b; and (b) deduct gambling losses to the extent of
winnings on Schedule A (Form 1040), Itemized
Deductions, line 16.
If the partnership was engaged in the trade or business
of gambling, (a) report gambling winnings in column (k) of
Schedule E (Form 1040), line 28; and (b) deduct gambling
losses (to the extent of winnings) in column (i) of
Schedule E (Form 1040), line 28.
Code L. Any income, gain, or loss to the partnership
from a distribution under section 751(b) (certain distributions treated as sales or exchanges). Report this
amount on Form 4797, Part II, line 10.
Code M. Gain eligible for section 1045 rollover (replacement stock purchased by partnership). The
partnership should give you (a) the name of the
corporation that issued the qualified small business (QSB)
stock, (b) your share of the partnership’s adjusted basis
and sales price of the QSB stock, (c) the dates the QSB
stock was bought and sold, (d) your share of gain from the
sale of the QSB stock, and (e) your share of the gain that
was deferred by the partnership under section 1045.
Corporate partners aren’t eligible for the section 1045
rollover. To qualify for the section 1045 rollover:
• You must have held an interest in the partnership
during the entire period in which the partnership held
the QSB stock (more than 6 months prior to the sale),
and
• Your share of the gain eligible for the section 1045
rollover can’t exceed the amount that would have been
allocated to you based on your interest in the
partnership at the time the QSB stock was acquired.
See the Instructions for Schedule D (Form 1040) and
the Instructions for Form 8949 for details on how to report
the gain and the amount of the allowable postponed gain.
Opting out of partnership election. You can opt out
of the partnership’s section 1045 election and either (a)
recognize the gain; or (b) elect to purchase different
replacement QSB stock, either directly or through
ownership of a different partnership that acquired
replacement QSB stock. You satisfy the requirement to
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code N. Gain eligible for section 1045 rollover (replacement stock not purchased by the partnership).
The partnership should give you (a) the name of the
corporation that issued the QSB stock, (b) your share of
the partnership’s adjusted basis and sales price of the
QSB stock, (c) the dates the QSB stock was bought and
sold, and (d) your share of gain from the sale of the QSB
stock. Corporate partners aren’t eligible for the section
1045 rollover. To qualify for the section 1045 rollover:
• You must have held an interest in the partnership
during the entire period in which the partnership held
the QSB stock,
• Your share of the gain eligible for the section 1045
rollover can’t exceed the amount that would have been
allocated to you based on your interest in the
partnership at the time the QSB stock was acquired,
and
• You must purchase other QSB stock (as defined in the
Instructions for Schedule D (Form 1040)) during the
60-day period that began on the date the QSB stock
was sold by the partnership.
See the Instructions for Schedule D (Form 1040) and
the Instructions for Form 8949 for details on how to report
the gain and the amount of the allowable postponed gain.
Making the section 1045 election. You make a
section 1045 election on a timely filed return for the tax
year during which the partnership’s tax year ends. See the
Instructions for Form 8949 and the Instructions for
Schedule D (Form 1040) for more information. Attach to
your Schedule D (Form 1040) a statement that includes
the following information for each amount of gain that you
don’t recognize under section 1045.
• The name of the corporation that issued the QSB
stock.
• The name and EIN of the selling partnership.
• The dates the QSB stock was purchased and sold.
• The amount of gain that isn’t recognized under section
1045.
• If a partner purchases QSB stock, the name of the
corporation that issued the replacement QSB stock,
the date the stock was purchased, and the cost of the
stock.
• If a partner treats the partner’s interest in QSB stock
that’s purchased by a purchasing partnership as the
partner’s replacement QSB stock, the name and EIN
of the purchasing partnership, the name of the
corporation that issued the replacement QSB stock,
the partner’s share of the cost of the QSB stock that
was purchased by the partnership, the computation of
the partner’s adjustment to basis with respect to that
QSB stock, and the date the stock was purchased by
the partnership.
Distribution of replacement QSB stock to a partner
that reduces another partner’s interest in
replacement QSB stock. You must recognize gain upon
a distribution of replacement QSB stock to another partner
17

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Code J. Recoveries of tax benefit items. A tax benefit
item is an amount you deducted in a prior tax year that
reduced your income tax. Report this amount on Schedule
1 (Form 1040), line 8z, to the extent it reduced your tax in
the prior tax year.

purchase replacement QSB stock if you own an interest in
a partnership that purchases QSB stock during the 60-day
period. You must also notify the partnership, in writing, if
you opt out of the partnership’s section 1045 election. If
you recognize gain, you must notify the partnership, in
writing, of the amount of the gain that you’re recognizing.

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Code O. Sale or exchange of QSB stock with section
1202 exclusion. The partnership will provide information
on gain from the sale or exchange of QSB stock (as
defined in the Instructions for Schedule D (Form 1065))
that’s eligible for a section 1202 exclusion. The
partnership should give you (a) the name of the
corporation that issued the QSB stock, (b) your share of
the partnership’s adjusted basis and sales price of the
QSB stock, and (c) the dates the QSB stock was bought
and sold. Corporate partners aren’t eligible for the section
1202 exclusion. The following additional limitations apply
at the partner level.
• You must have held an interest in the partnership
when the partnership acquired the QSB stock and at
all times thereafter until the partnership disposed of
the QSB stock.
• Your share of the eligible section 1202 gain can’t
exceed the amount that would have been allocated to
you based on your interest in the partnership at the
time the QSB stock was acquired.
See the Instructions for Schedule D (Form 1040) and
the Instructions for Form 8949 for details on how to report
the gain and the amount of the allowable exclusion.
Code P. Gain or loss on disposition of farm recapture
property and other items to which section 1252 applies. The partnership will provide information on gains
from the disposition of farm recapture property (see the
instructions for Form 4797, Part III, line 27) and other
items to which section 1252 applies.
Code Q. Gain or loss on Fannie Mae or Freddie Mac
qualified preferred stock. The partnership will provide
information on gain or loss attributable to the sale or
exchange of qualified preferred stock of the Federal
National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac).
It will attach a statement with the amount of gain or loss
attributable to the sale or exchange of the qualified
preferred stock, the date the stock was acquired by the
partnership, and the date the stock was sold or
exchanged by the partnership. If the partner isn’t a
financial institution, report the gain or loss on Schedule D
(Form 1040), line 5 or 12, in accordance with the
Instructions for Schedule D (Form 1040) and the
Instructions for Form 8949. If a partner is a financial
18

institution referred to in section 582(c)(2) or a depositary
institution holding company (as defined in section 3(w)(1)
of the Federal Deposit Insurance Act), report the gain or
loss in accordance with the Instructions for Form 4797;
and Rev. Proc. 2008-64, 2008-47 I.R.B. 1195.
Code R. Specially allocated ordinary gain (loss).
Report this amount on Form 4797, Part II, line 10.
Code S. Non-portfolio capital gain (loss). The
partnership will provide information on net short-term
capital gain (loss) and net long-term capital gain (loss)
from Schedule D (Form 1065) that aren’t portfolio income.
An example is gain or loss from the disposition of
nondepreciable personal property used in a trade or
business activity of the partnership. Report total net
short-term gain (loss) on Schedule D (Form 1040), line 5.
Report the total net long-term gain (loss) on Schedule D
(Form 1040), line 12.
Codes T through X. Reserved for future use.
Code ZZ. Other. Any other information you may need to
file your tax return.
Report loss items that are passive activity amounts to
you following the Instructions for Form 8582. However, if
the box in item D of Schedule K-1 is checked, report the
loss following the rules for PTPs under Publicly traded
partnerships, earlier.

Deductions
Box 12. Section 179 Deduction

Use this amount, along with the total cost of section 179
property placed in service during the year from other
sources, to complete Part I of Form 4562, Depreciation
and Amortization. The partnership will report on an
attached statement your allowable share of the cost of any
qualified enterprise zone or qualified real property it
placed in service during the tax year. Report the amount
from Form 4562, Part I, line 12, allocable to a passive
activity using the Instructions for Form 8582. If the amount
isn’t a passive activity deduction, report it in column (j) of
Schedule E (Form 1040), line 28. However, if the box in
item D of Schedule K-1 is checked, report this amount
following the rules for PTPs under Publicly traded
partnerships, earlier.

Box 13. Other Deductions
Contributions. Codes A through G. The partnership
will give you a statement that shows charitable
contributions subject to the 100%, 60%, 50%, 30%, and
20% AGI limitations. For more details, see Pub. 526,
Charitable Contributions, and the Instructions for
Schedule A (Form 1040). If your contributions are subject
to more than one of the AGI limitations, see Worksheet 2
in Pub. 526.
Charitable contribution deductions aren’t taken into
account in figuring your passive activity loss for the year.
Don’t include them on Form 8582.
Code A. Cash contributions (60%). Report this
amount, subject to the 60% AGI limitation, on Schedule A
(Form 1040), line 11.
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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that reduces your share of the replacement QSB stock
held by a partnership. The amount of gain that you must
recognize is based on the amount of gain that you would
recognize upon a sale of the distributed replacement QSB
stock for its FMV on the date of the distribution, but not to
exceed the amount you previously deferred under section
1045 with respect to the distributed replacement QSB
stock. If the partnership distributed your share of
replacement QSB stock to another partner, the
partnership should give you (a) the name of the
corporation that issued the replacement QSB stock, (b)
the date the replacement QSB stock was distributed to
another partner or partners, and (c) your share of the
partnership’s adjusted basis and FMV of the replacement
QSB stock on such date.
For more information, see Regulations section
1.1045-1.

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Code C. Noncash contributions (50%). Report this
amount, subject to the 50% AGI limitation, on Schedule A
(Form 1040), line 12. If property other than cash is
contributed, and if the claimed deduction for one item or
group of similar items of property exceeds $500, the
partnership must give you a copy of Form 8283, Noncash
Charitable Contributions, to attach to your tax return. Don’t
deduct the amount shown on Form 8283. It’s the
partnership’s contribution.
If the partnership provides you with information that the
contribution was property other than cash and doesn’t
give you a Form 8283, see the Instructions for Form 8283
for filing requirements. Don’t file Form 8283 unless the
total claimed deduction for all contributed items of
property exceeds $500.
Food inventory contributions. The partnership will
report on an attached statement your share of qualified
food inventory contributions. The food inventory
contribution isn’t included in the amount reported in
box 13 using code C. The partnership will also report your
share of the partnership’s net income from the business
activities that made the food inventory contribution(s).
Your deduction for food inventory contributions made
during 2025 can’t exceed 15% of your aggregate net
income for the tax year from the business activities from
which the food inventory contribution was made (including
your share of net income from partnership or S
corporation businesses that made food inventory
contributions). Amounts that exceed the 15% limitation
may be carried over for up to 5 years. Report this amount,
subject to the 50% AGI limitation, on Schedule A (Form
1040), line 12.
Noncash contributions You must fill out your own
Form 8283 with the information the partnership provides
you. If the partnership is the entity where the noncash
charitable contribution was originally reported, insert the
entity name and identifying number on your own Form
8283. See the Instructions for Form 8283 for more details.
If the partnership isn’t the entity where the noncash
charitable contribution was originally reported, the
partnership will provide you the entity name and
identifying number where the noncash charitable
contribution was originally reported. Enter this information
on your own Form 8283.
Qualified conservation contributions. The
partnership will report your share of qualified conservation
contributions of property. Subject to three exceptions,
each partner’s claim of a charitable contribution deduction
for a conservation contribution is disallowed if the amount
of the contribution exceeds 2.5 times the sum of each
ultimate member’s relevant basis (disallowance rule). See
the Instructions for Form 8283 and Regulations sections
1.170A-14(j) through (n) for more details. If the amount of
a contributing partnership’s or contributing S corporation’s
qualified conservation contribution equals or is less than
2.5 times the sum of each ultimate member’s relevant
basis, then any upper-tier partnership or upper-tier S
corporation must still determine whether the disallowance

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

rule applies to its allocated portion of the qualified
conservation contribution.
Relevant basis is, with respect to any ultimate member,
the portion of the ultimate member’s modified basis which
is allocable to the portion of the real property with respect
to which the qualified conservation contribution is made.
An “ultimate member” means, with respect to any
partnership or S corporation, any partner (that is not itself
a partnership or S corporation) or S corporation
shareholder that receives a distributive share or pro rata
share, directly or indirectly, of a qualified conservation
contribution. Thus, a partnership’s ultimate members will
be partners holding a direct interest in the partnership,
partners holding an interest in an upper-tier partnership, or
shareholders in an upper-tier S corporation. An upper-tier
partnership or upper-tier S corporation is a partnership or
S corporation that doesn’t itself make the contribution, but
instead receives an allocated portion of a qualified
conservation contribution from another partnership.
Subject to three exceptions, if an upper-tier
partnership’s or upper-tier S corporation’s allocated
portion exceeds 2.5 times the sum of each ultimate
member’s relevant basis, the contribution isn’t treated as a
qualified conservation contribution with respect to the
upper-tier partnership or upper-tier S corporation, any
subsequent upper-tier partnership or upper-tier S
corporation, or any ultimate member. No one may claim a
deduction for the allocated portion attributable to that
upper-tier partnership or upper-tier S corporation.
If an upper-tier partnership’s allocated portion doesn’t
exceed 2.5 times the sum of each ultimate member’s
relevant basis, then any subsequent upper-tier partnership
or upper-tier S corporation must determine whether the
disallowance rule applies to its allocated portion.
See Qualified Conservation Contribution in Pub. 526
and Disallowance of deduction for certain qualified
conservation contributions by partnerships and S
corporations in the Instructions for Form 8283. You must
fill out your own Form 8283 and attach the Form 8283 the
partnership provides you. See the Instructions for Form
8283 for more details. The partnership will provide you
your relevant basis. You must report this in column (h) of
your own Form 8283, Part I, line 3. The partnership may
need information from you to calculate relevant basis.
Code D. Noncash contributions (30%). Report this
amount, subject to the 30% AGI limitation, on Schedule A
(Form 1040), line 12.
Code E. Capital gain property to a 50% organization
(30%). Report this amount, subject to the 30% AGI
limitation, on Schedule A (Form 1040), line 12. See
Worksheet 2 in Pub. 526.
Code F. Capital gain property (20%). Report this
amount, subject to the 20% AGI limitation, on Schedule A
(Form 1040), line 12.
Code G. Contributions (100%). The partnership will
report your distributive share of the following contributions
(both cash and noncash) that may be subject to the 100%
AGI limitation.
Qualified conservation contributions of property
used in agriculture or livestock production. The
19

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Code B. Cash contributions (30%). Report this
amount, subject to the 30% AGI limitation, on Schedule A
(Form 1040), line 11.

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Code H. Investment interest expense. Include this
amount on Form 4952, line 1. If the partnership has
investment income or other investment expense, it’ll report
your share of these items in box 20 of Schedule K-1 using
codes A and B. Include investment income and expenses
from other sources to figure how much of your total
investment interest is deductible. You’ll also need this
information to figure your investment interest expense
deduction.
If the partnership paid or accrued interest on debts
properly allocable to investment property, the amount of
interest you’re allowed to deduct may be limited.
For more information on the special provisions that
apply to investment interest expense, see Form 4952 and
Pub. 550, Investment Income and Expenses.
Code I. Deductions—royalty income. Include
deductions allocable to royalties on Schedule E (Form
1040), line 19. For this type of expense, enter “From
Schedule K-1 (Form 1065).”
These deductions aren’t taken into account in figuring
your passive activity loss for the year. Don’t enter them on
Form 8582.
Code J. Section 59(e)(2) expenditures. On an
attached statement, the partnership will show the type and
the amount of qualified expenditures for which you may
make a section 59(e) election. The statement will also
identify the property for which the expenditures were paid
or incurred. If there is more than one type of expenditure,
the amount of each type will also be listed.
If you deduct these expenditures in full in the current
year, they’re treated as adjustments or tax preference
items for purposes of alternative minimum tax (AMT).
However, you may elect to amortize these expenditures
over the number of years in the applicable period rather
than deducting the full amount in the current year. If you
make this election, these items aren’t treated as
adjustments or tax preference items.
Under the election, you can deduct circulation
expenditures ratably over a 3-year period. R&E
expenditures and mining exploration and development
costs can be amortized over a 10-year period. Intangible
drilling and development costs can be amortized over a
60-month period. The amortization period begins with the
month in which such costs were paid or incurred.
Make the election on Form 4562. If you make the
election, report the current-year amortization of section
59(e) expenditures from Form 4562, Part VI, on
Schedule E (Form 1040), line 28. If you don’t make the
election, report the section 59(e)(2) expenditures on
Schedule E (Form 1040), line 28, and figure the resulting
20

adjustment or tax preference item (see Form 6251,
Alternative Minimum Tax—Individuals). Whether you
deduct the expenditures or elect to amortize them, report
the amount on a separate line of column (i) of Schedule E
(Form 1040), line 28, if you materially participated in the
partnership activity. If you didn’t materially participate,
follow the Instructions for Form 8582 to figure how much of
the deduction can be reported in column (g) of
Schedule E (Form 1040), line 28.
Code K. Excess business interest expense (EBIE). If
the partnership reports EBIE to the partner, the partner is
required to file Form 8990. See the Instructions for Form
8990 for additional information.
For tax years beginning after 2017, the partner’s basis
in its partnership interest at the end of the tax year is
reduced (but not below zero) by the amount of excess
business interest allocated to the partner for the tax year,
even if the partner isn’t allowed a deduction for the
allocated excess business interest in the year of the basis
reduction. If the partner disposes of a partnership interest
in which the basis has been reduced before all of the
allocated excess business interest was used, the partner
increases its basis immediately before the sale for the
amount not yet deducted.
Code L. Deductions—portfolio income (other).
Generally, you should report these amounts on
Schedule A (Form 1040), line 16. See the instructions for
Schedule A, line 16, for details. These deductions aren’t
taken into account in figuring your passive activity loss for
the year. Don’t enter them on Form 8582.
Code M. Amounts paid for medical insurance. The
partnership will provide information on amounts paid
during the tax year for insurance that constitutes medical
care for you, your spouse, your dependents, and your
children under age 27 who aren’t dependents. On
Schedule 1 (Form 1040), line 17, you may be allowed to
deduct such amounts, even if you don’t itemize
deductions. If you do itemize deductions, enter on
Schedule A (Form 1040), line 1, any amounts not
deducted on Schedule 1 (Form 1040), line 17.
Code N. Educational assistance benefits. Use this
amount to deduct your educational assistance benefits on
a separate line of Schedule E (Form 1040), line 28, up to
the $5,250 limitation. If your benefits exceed $5,250, you
may be able to use the excess amount on Form 8863 to
figure the education credits.
Code O. Dependent care benefits. The partnership will
report the dependent care benefits you received. You
must use Form 2441, Part III, to figure the amount, if any,
of the benefits you may exclude from your income.
Code P. Preproductive period expenses. You may be
able to deduct these expenses currently or you may need
to capitalize them under section 263A. See Pub. 225,
Farmer’s Tax Guide, and Regulations section 1.263A-4 for
details.
Code Q. Reserved for future use.
Code R. Pensions and IRAs. The partnership will
provide information on payments made on your behalf to
an IRA, a qualified plan, a simplified employee pension
(SEP), or a SIMPLE IRA plan. See the instructions for
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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partnership will report your share of qualified conservation
contributions of property used in agriculture or livestock
production. This contribution isn’t included in the amount
reported in box 13 using code C. If you’re a farmer or
rancher, you qualify for a 100% AGI limitation for this
contribution. Otherwise, your deduction for this
contribution is subject to a 50% AGI limitation. Report this
amount on Schedule A (Form 1040), line 12. See Pub.
526 for more information on qualified conservation
contributions.

TREASURY/IRS AND OMB USE ONLY DRAFT
Schedule 1 (Form 1040), line 20, to figure your IRA
deduction. Enter payments made to a qualified plan, SEP,
or SIMPLE IRA plan on Schedule 1 (Form 1040), line 16. If
the payments to a qualified plan were to a defined benefit
plan, the partnership should give you a statement showing
the amount of the benefit accrued for the current tax year.
Code S. Reforestation expense deduction. The
partnership will provide a statement that describes the
qualified timber property for these reforestation expenses.
The expense deduction is limited to $10,000 ($5,000 if
married filing separately) for each qualified timber
property, including your share of the partnership’s
expense and any reforestation expenses you separately
paid or incurred during the tax year.
If you didn’t materially participate in the activity, use
Form 8582 to figure the amount to report in column (g) of
Schedule E (Form 1040), line 28. If you materially
participated in the reforestation activity, report the
deduction in column (i) of Schedule E (Form 1040),
line 28.
Code V. Section 743(b) negative income adjustments. The partnership will use this code to report the
net negative income adjustment resulting from all section
743(b) basis adjustments. The partnership will provide
your section 743(b) adjustment net of cost recovery at
year end by asset grouping in box 20, code U. See
Section 743(b) adjustments, earlier.
Code W. Soil and water conservation. The partnership
will provide a statement of soil and water conservation
expenditures and endangered species recovery
expenditures, a portion of which may be deductible on
Schedule F (Form 1040) by taxpayers engaged in the
business of farming. See Line 12 in the Instructions for
Schedule F. Also see section 175 for limitations on the
amount you’re allowed to deduct.
Code X. Film, television, theatrical, and qualified
sound recording production expenditures. The
partnership will provide a statement that describes the
film, television, live theatrical, or qualified sound recording
production generating these expenses. See section
181(a)(2) for limitations on the amount you’re allowed to
deduct. If you didn’t materially participate in the activity,
use Form 8582 to determine the amount that can be
reported in column (g) of Schedule E (Form 1040), line 28.
If you materially participated in the production activity,
report the deduction in column (i) of Schedule E (Form
1040), line 28.
Code Y. Expenditures for removal of barriers. The
partnership will provide a statement outlining expenditures
for the removal of architectural and transportation barriers
to the elderly and disabled that the partnership elected to
treat as a current expense. The deductions are limited by
section 190(c) to $15,000 per year from all sources.
Code Z. Itemized deductions. The partnership will
provide a statement outlining itemized deductions that
Form 1040 or 1040-SR filers report on Schedule A (Form
1040).
Code AA. Contributions to a capital construction
fund (CCF). The deduction for a CCF investment isn’t
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code AB. Penalty on early withdrawal of savings.
Report this amount on Schedule 1 (Form 1040), Part II,
line 18.
Code AC. Interest expense allocated to debt-financed
distributions. The manner in which you report such
interest expense depends on your use of the distributed
debt proceeds. If the proceeds were used in a trade or
business activity, report the interest on Schedule E (Form
1040), line 28. In column (a), enter the name of the
partnership and “interest expense.” If you materially
participated in the trade or business activity, enter the
interest expense in column (i). If you didn’t materially
participate in the activity, follow the Instructions for Form
8582 to figure the interest expense you can report in
column (g). See the definition of material participation,
earlier. If the proceeds were used in an investment activity,
report the interest on Form 4952. If the proceeds are used
for personal purposes, the interest is generally not
deductible.
Code AD. Interest expense on working interest in oil
or gas. The partnership will provide information for
interest paid or accrued on debt properly allocable to your
share of a working interest in any oil or gas property (if
your liability isn’t limited). If you didn’t materially
participate in the oil or gas activity, this interest is
investment interest reportable as described earlier under
Code H; otherwise, it’s trade or business interest. If you
didn’t materially participate in the oil or gas activity, this
interest is investment interest expense and should be
reported on Form 4952. If you materially participated in
the activity, report the interest on Schedule E (Form 1040),
line 28. On a separate line, enter “interest expense” and
the name of the partnership in column (a) and the amount
in column (i).
Code AE. Deductions—portfolio income. These were
formerly deductible by individuals under section 67
subject to the 2% AGI floor. For taxpayers other than
individuals, deduct amounts that are clearly and directly
allocable to portfolio income (other than investment
interest expense and section 212 expenses from a
REMIC).
The partnership will give you a description and the
amount of your share for each of these items.
Codes AF through AJ. Reserved for future use.
Code ZZ. Other. Any other information you may need to
file your tax return.

Box 14. Self-Employment Earnings
(Loss)

If you and your spouse are both partners, each of you
must complete and file your own Schedule SE (Form
1040), Self-Employment Tax, to report your partnership
net earnings (loss) from self-employment.

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Codes T through U. Reserved for future use.

taken on Schedule E (Form 1040). Instead, you subtract
the deduction from the amount that would normally be
entered as taxable income on Form 1040 or 1040-SR,
line 15. In the margin to the left of line 15, enter “CCF” and
the amount of the deduction.

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Code A. Net earnings (loss) from self-employment. If
you’re a general partner, reduce this amount before
entering it on Schedule SE (Form 1040) by any section
179 expense deduction claimed, unreimbursed
partnership expenses claimed, and depletion claimed on
oil and gas properties. Don’t reduce net earnings from
self-employment by any separately stated deduction for
health insurance expenses.
If the amount in this box is a loss, enter only the
deductible amount on Schedule SE (Form 1040). See
Limitations on Losses, Deductions, and Credits, earlier.
If your partnership is an options dealer or a
commodities dealer, see section 1402(i).
If your partnership is an investment club, see Rev. Rul.
75-525, 1975-2 C.B. 350.

Code C. Gross nonfarm income. If you’re an individual
partner, use this amount to figure net earnings from
self-employment under the nonfarm optional method on
Schedule SE (Form 1040), Part II.

Box 15. Credits

If you have credits that are passive activity credits to you,
you must complete Form 8582-CR (or Form 8810 for
corporations) in addition to the credit forms identified
below. See Passive Activity Limitations, earlier, and the
Instructions for Form 8582-CR (or Form 8810) for details.
Tip: Generally, you aren’t required to complete the source
credit form or attach it to Form 3800 if you’re a taxpayer
that isn’t a partnership or S corporation, and your only
source for a credit listed in Form 3800, Part III, is from a
partnership, S corporation, estate, trust, or cooperative.
(Instead, you can report this credit directly in Form 3800,
Part III, and enter the EIN of the partnership in column (c)
of Part III.) The following exceptions apply.
• You’re claiming the investment credit (Form 3468) or
the biodiesel, renewable diesel, or sustainable
aviation fuels credit (Form 8864).
• The taxpayer is an estate or trust and the source credit
can be allocated to beneficiaries. For more details,
see the instructions for box 13 of Schedule K-1 (Form
1041), Beneficiary’s Share of Income, Deductions,
Credits, etc.
• The taxpayer is a cooperative and the source credit
can or must be allocated to patrons. For more details,
see the instructions for Form 1120-C, U.S. Income Tax
Return for Cooperative Associations, Schedule J,
line 5c.
Code A. Zero-emission nuclear power production
credit. Report this amount on Form 7213, Nuclear Power
Production Credit, Part II; or Form 3800, Part III, line 1u.
Code B. Credit for production from advanced nuclear
power facilities. Report this amount on Form 7213, Part
I; or Form 3800, Part III, line 1cc.
22

Code E. Qualified rehabilitation expenditures (rental
real estate). The partnership will report your share of the
qualified rehabilitation expenditures and other information
you need to complete Form 3468 related to rental real
estate activities using code E. Your share of qualified
rehabilitation expenditures from property not related to
rental real estate activities will be reported in box 20 using
code D. See the Instructions for Form 3468 for details. If
the partnership is reporting expenditures from more than
one activity, the attached statement will separately identify
the expenditures from each activity.
Combine the expenditures (for Form 3468 reporting)
from box 15, code E, and box 20, code D. The
expenditures related to rental real estate activities (box 15,
code E) are reported on Schedule K-1 separately from
other qualified rehabilitation expenditures (box 20, code
D) because they’re subject to different passive activity
limitation rules. See the Instructions for Form 8582-CR for
details.
Code F. Other rental real estate credits. The
partnership will identify the type of credit and any other
information you need to figure these credits from rental
real estate activities (other than the low-income housing
credit and qualified rehabilitation expenditures). These
credits may be limited by the passive activity limitations. If
the credits are from more than one activity, the partnership
will identify the credits from each activity on an attached
statement. See Passive Activity Limitations, earlier, and
the Instructions for Form 8582-CR for details.
Code G. Other rental credits. The partnership will
identify the type of credit and any other information you
need to figure these rental credits. These credits may be
limited by the passive activity limitations. If the credits are
from more than one activity, the partnership will identify
the credits from each activity on an attached statement.
See Passive Activity Limitations, earlier, and the
Instructions for Form 8582-CR for details.
Code H. Undistributed capital gains credit. Code H
represents taxes paid on undistributed capital gains by a
RIC or REIT. Report these taxes on Schedule 3 (Form
1040), Part II, line 13a.
Code I. Biofuel producer credit. Report this amount on
Form 6478, Biofuel Producer Credit, line 3; or Form 3800,
Part III, line 4c (see Tip, earlier).

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Code B. Gross farming or fishing income. If you’re an
individual partner, enter the amount from this line, as an
item of information, on Schedule E (Form 1040), line 42.
Also use this amount to figure net earnings from
self-employment under the farm optional method on
Schedule SE (Form 1040), Part II.

Codes C and D. Low-income housing credit. If section
42(j)(5) applies, the partnership will report your share of
the low-income housing credit using code C. If section
42(j)(5) doesn’t apply, your share of the credit will be
reported using code D. Any allowable low-income housing
credit reported using code C or D is reported on Form
8586, line 4; or Form 3800, Part III, line 4d.
Keep a separate record of the low-income housing
credit from each separate source so that you can correctly
figure any recapture of low-income housing credit that
may result from the disposition of all or part of your
partnership interest. For more information on recapture,
see the instructions for Form 8611, Recapture of
Low-Income Housing Credit.

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Code J. Work opportunity credit. Report this amount
on Form 5884, Work Opportunity Credit, line 3; or Form
3800, Part III, line 4b (see Tip, earlier).

Code U. Unused investment credit from the rehabilitation credit allocated from cooperatives. Report this
amount on Form 3468, Part VII, line 2.

Code K. Disabled access credit. Report this amount on
Form 8826, Disabled Access Credit, line 7; or Form 3800,
Part III, line 1e (see Tip, earlier).

Code V. Advanced manufacturing production credit.
Report this amount on Form 7207; or Form 3800, Part III,
line 1b.

Code L. Empowerment zone employment credit.
Report this amount on Form 8844, Empowerment Zone
Employment Credit, line 3; or Form 3800, Part III, line 3
(see Tip, earlier).

Code W. Clean electricity production credit. Report
this amount on Form 7211; or Form 3800, Part III, line 1gg.

Code N. Credit for employer social security and Medicare taxes. Report this amount on Form 8846, Credit for
Employer Social Security and Medicare Taxes Paid on
Certain Employee Tips, line 5; or Form 3800, Part III,
line 4f (see Tip, earlier).
Code O. Backup withholding. This is your share of the
credit for backup withholding on dividends, interest
income, and other types of income. Include this amount in
the total you enter on Form 1040 or 1040-SR, line 25c,
and attach a copy of the Schedule K-1 to your tax return.
Instead of attaching a copy of the Schedule K-1 to the tax
return, you can include a statement with the return that
provides the partnership’s name, address, EIN, and
backup withholding amount.
Other credits. Most credits identified by codes P through
ZZ will be reported on Form 3800 (see Tip, earlier).
Code P. Unused investment credit from the qualifying
advanced coal project credit or qualifying gasification project credit allocated from cooperatives.
Report this amount on Form 3468, Part II, line 6.
Code Q. Unused investment credit from the qualifying advanced energy project credit allocated from
cooperatives. Report this amount on Form 3468, Part III,
line 2.
Code R. Unused investment credit from the advanced manufacturing investment credit allocated
from cooperatives. Report this amount on Form 3468,
Part IV, line 2.
Code S. Unused investment credit from the clean
electricity investment credit allocated from cooperatives. Report this amount on Form 3468, Part V,
Section C, line 10.
Code T. Unused investment credit from the energy
credit allocated from cooperatives. Report this amount
on Form 3468, Part VI, Section N, line 31.

Code Y. Clean hydrogen production credit. Report
this amount on Form 7210; or Form 3800, Part III, line 1g.
Code Z. Orphan drug credit. Report this amount on
Form 8820; or Form 3800, Part III, line 1h.
Code AA. Enhanced oil recovery credit. Report this
amount on Form 8830; or Form 3800, Part III, line 1t.
Code AB. Renewable electricity production credit.
Report this amount on Form 8835; or Form 3800, Part III,
line 1f.
Code AC. Biodiesel, renewable diesel, or sustainable
aviation fuels credit. If this credit includes the small
agri-biodiesel producer credit, the partnership will provide
additional information on an attached statement. If no
statement is attached, report this amount on Form 8864,
line 10. If a statement is attached, see the instructions for
Form 8864, line 10.
Code AD. New markets credit. Report this amount on
Form 8874; or Form 3800, Part III, line 1i.
Code AE. Small employer pension plan startup costs
credit and contributions credit. Report this amount on
Form 8881, Part I; or Form 3800, Part III, line 1j.
Code AF. Small employer auto-enrollment credit.
Report this amount on Form 8881, Part II; or Form 3800,
Part III, line 1dd.
Code AG. Small employer military spouse participation credit. Report this amount on Form 8881, Part III; or
Form 3800, Part III, line 1ee.
Code AH. Credit for employer-provided childcare facilities and services. Report this amount on Form 8882;
or Form 3800, Part III, line 1k.
Code AI. Low sulfur diesel fuel production credit.
Report this amount on Form 8896; or Form 3800, Part III,
line 1m.
Code AJ. Qualified railroad track maintenance credit.
Report this amount on Form 8900; or Form 3800, Part III,
line 4g.
Code AK. Credit for oil and gas production from marginal wells. Report this amount on Form 8904; or Form
3800, Part III, line 1bb.
Code AL. Distilled spirits credit. Report this amount on
Form 8906; or Form 3800, Part III, line 1n.
Code AM. Energy efficient home credit. Report this
amount on Form 8908; or Form 3800, Part III, line 1p.
Code AN. Reserved for future use.

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Code M. Credit for increasing research activities.
Report this amount on Form 6765, Credit for Increasing
Research Activities, line 29; or Form 3800, Part III (see
Tip, earlier) as follows.
• The partnership will provide information necessary to
determine if it’s an eligible small business under
section 38(c)(5)(A). If you and the partnership are
eligible small businesses, report the credit on line 4i.
For more information, see the Instructions for Form
3800.
• All others, report the credit on line 1c.

Code X. Clean fuel production credit. Report this
amount on Form 7218; or Form 3800, Part III, line 1q.

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Code AO. Alternative fuel vehicle refueling property
credit. Report this amount on Form 8911, Part I; or Form
3800, Part III, line 1s.
Code AP. Clean renewable energy bond credit.
Report this amount on Form 8912.
Code AQ. New clean renewable energy bond credit.
Report this amount on Form 8912.
Code AR. Qualified energy conservation bond credit.
Report this amount on Form 8912.
Code AS. Qualified zone academy bond credit.
Report this amount on Form 8912.
Code AT. Qualified school construction bond credit.
Report this amount on Form 8912.
Code AU. Build America bond credit. Report this
amount on Form 8912.

Code AW. Carbon oxide sequestration credit. Report
this amount on Form 8933, Part III, line 8; or Form 3800,
Part III, line 1x.
Code AX. Carbon oxide sequestration credit recapture. Report this amount on Form 8933, Part III, line 10.
Code AY. New clean vehicle credit. Report this amount
on Form 8936, Part II; or Form 3800, Part III, line 1y. For
limitations on this credit that apply to some taxpayers, see
New Clean Vehicle Certification and Other Requirements
in the Instructions for Form 8936.
Code AZ. Credit for qualified commercial clean vehicles. Report this amount on Form 8936, Part V; or Form
3800, Part III, line 1aa.
Code BA. Credit for small employer health insurance
premiums. Report this amount on Form 8941; or Form
3800, Part III, line 4h.
Code BB. Employer credit for paid family and medical leave. Report this amount on Form 8994; or Form
3800, Part III, line 4j.
Code BC. Eligible credits from transferor(s) under
section 6418. Report this amount on Form 3800. See the
instructions for Form 3800, Parts III and V, for additional
information.
Codes BD through BG. Reserved for future use.
Code ZZ. Other. Any other information you may need to
file your tax return.
Section 6418 transfer election and retained section
48 credit. If the partnership has made an election under
section 6418 with regard to a section 48 credit and is
using code ZZ to report your share of the credit which was
not transferred by the partnership, report this amount on
Form 3800, Part III, line 4a.
Section 6418 transfer election and retained section
48C credit. If the partnership has made an election
under section 6418 with regard to a section 48C credit
and is using code ZZ to report your share of the credit
which was not transferred by the partnership, report this
amount on Form 3800, Part III, line 1d.
24

Box 16. International Transactions

If the partnership checked the box, see the attached
Schedule K-3 with respect to items of international tax
relevance.
If the partnership didn’t check the box, the partnership
attached a statement to the Schedule K-1 (or issued a
statement prior to furnishing the Schedule K-1) notifying
the partner that the partner won’t receive Schedule K-3
from the partnership unless the partner requests the
schedule.

For additional information, see the Partner’s
Instructions for Schedule K-3.

Box 17. Alternative Minimum Tax
(AMT) Items

Use the information reported in box 17 (as well as your
adjustments and tax preference items from other sources)
to prepare your Form 6251; or Schedule I (Form 1041),
Alternative Minimum Tax—Estates and Trusts.

Code A. Post-1986 depreciation adjustment. This
amount is your share of the partnership’s post-1986
depreciation adjustment. If you’re an individual partner,
report this amount on Form 6251, Part I, line 2l.
Code B. Adjusted gain or loss. This amount is your
share of the partnership’s adjusted gain or loss. If you’re
an individual partner, report this amount on Form 6251,
Part I, line 2k.
Code C. Depletion (other than oil & gas). This amount
is your share of the partnership’s depletion adjustment. If
you’re an individual partner, report this amount on Form
6251, Part I, line 2d.
Codes D and E. Oil, gas, & geothermal properties—gross income and deductions. The amounts
reported on these lines include only the gross income
(code D) from, and deductions (code E) allocable to, oil,
gas, and geothermal properties included in box 1 of
Schedule K-1. The partnership should have attached a
statement that shows any income from or deductions
allocable to such properties that are included in boxes 2
through 13, 18, and 20 of Schedule K-1. Use the amounts
reported and the amounts on the attached statement to
help you figure the net amount to enter on Form 6251, Part
I, line 2t.
Code F. Other AMT items. Enter the information on the
statement attached by the partnership on the applicable
lines of Form 6251, Form 4626, or Schedule I (Form
1041).

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Code AV. Credit for employer differential wage payments. Report this amount on Form 8932; or Form 3800,
Part III, line 1w.

Section 6418 transfer election and retained section
48E credit. If the partnership has made an election under
section 6418 with regard to a section 48E credit and is
using code ZZ to report your share of the credit which was
not transferred by the partnership, report this amount on
Form 3800, Part III, line 1v.

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Box 18. Tax-Exempt Income and
Nondeductible Expenses
Code A. Tax-exempt interest income. Report on your
return, as an item of information, your share of the
tax-exempt interest received or accrued by the partnership
during the year. Individual partners include this amount on
Form 1040 or 1040-SR, line 2a. Increase the adjusted
basis of your interest in the partnership by this amount.
Code B. Other tax-exempt income. Increase the
adjusted basis of your interest in the partnership by the
amount shown, but don’t include it in income on your tax
return.
Tip: The partnership will attach a statement for the
amount included under code B that’s exempt by reason of
section 892 and describe the nature of the income.

Box 19. Distributions
Code A. Cash and marketable securities other than
for services. In general, code A is used to report the
distributions the partnership made to you of money, that is,
cash and certain marketable securities. Code A, however,
doesn’t include deemed distributions of money under
section 752(b); see Code D, later. Code A also doesn’t
include distributions the partnership made to you for
performing services. See the instructions later for codes F
and G.
For marketable securities that are treated as money, the
partnership will use code A in box 19 to report its
marketable securities at their FMVs on the date of
distribution reduced (but not below zero) by the reduction
amount in section 731(c)(3)(B). See section 731(c)(3) and
Regulations section 1.731-2 for additional exceptions to
treating marketable securities as money.
The partnership will also attach a statement separately
identifying the following.
• The FMVs of the marketable securities when
distributed minus the reduction amount (if any).
• The partnership’s adjusted basis of those securities
immediately before the distribution.
Gain. To the extent the cash and the FMV of the
securities (reduced by the reduction amount) received
exceed the adjusted basis of your partnership interest
immediately before the distribution, the excess is treated
as gain from the sale or exchange of your partnership
interest.
Generally, this gain is treated as gain from the sale of a
capital asset and should be reported on Form 8949 and
the Schedule D for your return. However, if you receive
cash or property in exchange for any part of a partnership
interest, the amount of the distribution attributable to your
share of the partnership’s unrealized receivables or
inventory items results in ordinary income. See
Regulations section 1.751-1(a) and Sale or Exchange of
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code B. Distribution subject to section 737. If you
contributed section 704(c) built-in gain property to the
partnership within the last 7 years and the partnership
during the tax year distributed property other than the
previously contributed built-in gain property to you
(section 737 property), you may be required to recognize
gain under section 737. This gain is in addition to any gain
you recognized under section 731 on the distribution.
When this occurs, the partnership will use code B in
box 19 of Schedule K-1 to report the partnership’s
adjusted basis of the section 737 property immediately
before the property was distributed to you, taking into
account any adjustments under section 732(d), 734(b), or
743(b), as applicable. The partnership will also attach a
statement providing the information you need to figure the
recognized gain under section 737. The partnership must
provide the following information.
• The FMV of the distributed property (other than
money).
• The amount of money received in the distribution.
• The net precontribution gain of the partner.

Using the information from the attached statement,
complete the following worksheet to figure your
recognized gain under section 737.

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Code C. Nondeductible expenses. The nondeductible
expenses paid or incurred by the partnership aren’t
deductible on your tax return. Decrease the adjusted
basis of your interest in the partnership by this amount.

Partnership Interest, earlier. For more details, see Form
8308.

Computation of Section 737 Gain
1. Enter the FMV of the distributed property
(other than money) . . . . . . . . . . . . . .
2. Enter your adjusted basis in the partnership
immediately before the distribution. See Basis
Limitations, earlier . . . . . . . . . . . . . . .
3. Enter the amount of money received in the
distribution . . . . . . . . . . . . . . . . . . .
4. Subtract line 3 from line 2. If zero or less,
enter -0- . . . . . . . . . . . . . . . . . . . . .
5. Subtract line 4 from line 1

$

. . . . . . . . . .

6. Enter your net precontribution gain

. . . .

7. Section 737 gain. Enter the lesser of the
amount reported on line 5 or line 6 . . . . .

The type of gain (section 1231 gain, capital gain, etc.)
generated is determined by the type of gain you would
have recognized if you sold the property rather than
contributing it to the partnership. However, to the extent
section 751(b) applies, the gain will be treated as ordinary
income. Accordingly, report the amount from line 7, above,
on Form 4797 or Form 8949 and the Schedule D of your
tax return.
Code C. Other property. Code C is used to report the
partnership’s adjusted basis in property other than money
immediately before the property was distributed to you,
taking into account any adjustments under section 732(d),
734(b), or 743(b), as applicable. Code C, however,
doesn’t include distributions of marketable securities
reported under codes A and F, section 737 property
reported under code B, and property reported under code
G. In addition, the partnership should report the adjusted

25

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Code D. Deemed distributions of money—decreases
in partner’s share of liabilities. Code D is used to
report any deemed distributions of money to you resulting
from a net decrease in your share of partnership liabilities
and a net decrease in your individual liabilities by reason
of the partnership’s assumption of your individual liabilities
under section 752(b) for the current tax year. See
Regulations section 1.752-1 for additional information.
Gain. To the extent the deemed distribution under
section 752(b) received exceeds the adjusted basis of
your partnership interest immediately before the
distribution, the excess is treated as gain from the sale or
exchange of your partnership interest. Generally, this gain
is treated as gain from the sale of a capital asset and
should be reported on Form 8949 and the Schedule D for
your return. However, if you’re deemed to receive money
in exchange for any part of a partnership interest, the
amount of the distribution attributable to your share of the
partnership’s unrealized receivables or inventory items
results in ordinary income. See Regulations section
1.751-1(a) and Sale or Exchange of Partnership Interest,
earlier. For more details, see Form 8308 and its
instructions.
Code E. Reserved for future use.

Codes F and G. Certain Distributions of Property
for Performing Services
Except as explained next under Code F and Code G,
report any distributions of property the partnership made
to you for performing services. These codes report
distributions if (i) you performed services for the
partnership, (ii) the partnership allocated income and
distributed property to you, and (iii) the partnership treated
the transaction as a distribution to you as a partner.
The code used depends on the kind of property the
partnership distributed to you.
Code F. Code F is used to report any distribution of cash
or marketable securities treated as money made to you for
performing services. The partnership will report the
marketable securities at their FMVs on the date of
distribution reduced (but not below zero) by the reduction
amount in section 731(c)(3)(B). See section 731(c)(3) and
Regulations section 1.731-2 for additional exceptions to
treating marketable securities as money.
The partnership will also attach a statement separately
identifying the following.
• The FMVs of the marketable securities when
distributed minus the reduction amount (if any).
• The partnership’s adjusted basis of those securities
immediately before the distribution.
Gain. To the extent the cash and the FMV of the
securities (reduced by the reduction amount) received
exceed the adjusted basis of your partnership interest
immediately before the distribution, the excess is treated
as gain from the sale or exchange of your partnership
interest. Generally, this gain is treated as gain from the
sale of a capital asset and should be reported on Form
26

8949 and the Schedule D for your return. However, if you
receive cash or property in exchange for any part of a
partnership interest, the amount of the distribution
attributable to your share of the partnership’s unrealized
receivables or inventory items results in ordinary income.
See Regulations section 1.751-1(a) and Sale or Exchange
of Partnership Interest, earlier. For more details, see Form
8308.
Code G. Code G is used to report any property (other
than cash, marketable securities, and section 737
property) that was distributed to you for performing
services. The partnership will use code G to report its
adjusted basis in the distributed property before the
property was distributed to you, taking into account any
adjustments under section 732(d), 734(b), or 743(b), as
applicable. In addition, the partnership should report the
adjusted basis and FMV of each property distributed to
you in a statement attached to your Schedule K-1.
Exception—payments reported as fees. The
partnership didn't use code F or G to report payments for
services the partnership made to you acting in a
non-partner capacity, for example, as a transaction
occurring between the partnership and one who isn't a
partner. Instead, you and the partnership should report the
results of the transaction in accordance with section
707(a)(1). For example, a payment made for services
described in section 707(a)(2)(A) would be treated as
occurring between a partnership and one who isn’t a
partner. Section 707(a)(2)(A) applies to a partner who
performs services for a partnership when there is a related
direct or indirect allocation and distribution to the partner
and the performance of such services and the allocation
and distribution, when viewed together, are properly
characterized as a transaction occurring between the
partnership and one who isn’t a partner.
Exception—guaranteed payments. The partnership
didn’t use code F or G to report guaranteed payments it
made to you for services under section 707(c). Instead,
the partnership reported the guaranteed payments in
box 4a of Schedule K-1.

Basis in Partnership Interest and Property
Received
Codes A, D, and F. The following instructions explain the
effects on basis of a distribution of money (including a
deemed distribution of money under section 752).
The amounts reported using codes A, D, and F
decrease the adjusted basis of your interest in the
partnership (but not below zero) by the amount of cash
distributed to you, the deemed distribution under section
752(b), and the partnership’s adjusted basis of the
distributed securities. Advances or drawings of money or
property against your share are treated as current
distributions made on the last day of the partnership’s tax
year.
Your basis in the distributed marketable securities
(other than in liquidation of your interest) is the smaller of:
• The partnership’s adjusted basis in the securities
immediately before the distribution increased by any
gain recognized on the distribution of the securities, or
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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basis and FMV of each property distributed to you in a
statement attached to your Schedule K-1.

TREASURY/IRS AND OMB USE ONLY DRAFT

• The adjusted basis of your partnership interest

reduced by any cash distributed in the same
transaction and increased by any gain recognized on
the distribution of the securities.

Codes B, C, and G. The following instructions explain
the effects of a distribution of property reported using
codes B, C, and G.
The amounts reported using codes B, C, and G
decrease the adjusted basis of your interest in the
partnership by the amount of your basis in the distributed
property. If you recognized gain under section 737
because of a distribution reported with code B, that will
increase the adjusted basis of your partnership interest.
Your basis in the distributed property (other than in
liquidation of your interest) is the smaller of:
• The partnership’s adjusted basis immediately before
the distribution, taking into account any adjustments
under section 732(d), 734(b), or 743(b), as applicable;
or
• The adjusted basis of your partnership interest
reduced by any cash distributed in the same
transaction.
If you received the property in liquidation of your
interest, your basis in the distributed property is equal to
the adjusted basis of your partnership interest reduced by
any cash distributed in the same transaction. Using the
information provided by the partnership and your own
records, complete a Form 7217 for each date on which
you receive a liquidating or non-liquidating distribution of
property from the partnership. Attach the Form(s) 7217 to
your income tax return.
Note: If you receive cash or property in exchange for any
part of a partnership interest, the amount of the
distribution attributable to your share of the partnership’s
unrealized receivables or inventory items results in
ordinary income. See Regulations section 1.751-1(a) and
Sale or Exchange of Partnership Interest, earlier.

Box 20. Other Information
Code A. Investment income. Report this amount on
Form 4952, Part II, line 4a.
Code B. Investment expenses. Report this amount on
Form 4952, Part II, line 5.
Code C. Fuel tax credit information. The partnership
will report the number of gallons of each fuel sold or used
during the tax year for a nontaxable use qualifying for the
credit for taxes paid on fuels, type of use, and the
applicable credit per gallon. Use this information to
complete Form 4136, Credit for Federal Tax Paid on Fuels.
Code D. Qualified rehabilitation expenditures (other
than rental real estate). The partnership will report your
share of qualified rehabilitation expenditures and other
information you need to complete Form 3468 for property
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code E. Basis of energy property. If the partnership
provides an attached statement for code E, use the
information on the statement to complete the applicable
energy credit on Form 3468, Part VI. See Part VI in the
Instructions for Form 3468.
Codes F and G. Recapture of low-income housing
credit. A section 42(j)(5) partnership will report recapture
of a low-income housing credit with code F. All other
partnerships will report recapture of a low-income housing
credit with code G. Keep a separate record of recapture
from each of these sources so that you’ll be able to
correctly figure any recapture of low-income housing
credit that may result from the disposition of all or part of
your partnership interest. For details, see Form 8611.
Code H. Recapture of investment credit. The
partnership will provide any information you need to figure
your recapture tax on Form 4255, Certain Credit
Recapture, Excessive Payments, and Penalties. See the
Form 3468 you used to take the original credit for other
information needed to complete Form 4255.
You may also need Form 4255 if you disposed of more
than one-third of your interest in a partnership.
Code I. Recapture of other credits. On a statement
attached to Schedule K-1, the partnership will report any
information you need to figure the recapture of the new
markets credit (see Form 8874; and Form 8874-B, Notice
of Recapture Event for New Markets Credit); any credit for
employer-provided childcare facilities and services (see
Form 8882); the alternative motor vehicle credit (see
section 30B(h)(8)); the alternative fuel vehicle refueling
property credit (see section 30C(e)(5)); or the clean
vehicle credit (see section 30D(f)(5)).
Code J. Look-back interest—completed long-term
contracts. The partnership will report any information
you need to figure the interest due or to be refunded under
the look-back method of section 460(b)(2) on certain
long-term contracts. Use Form 8697, Interest Computation
Under the Look-Back Method for Completed Long-Term
Contracts, to report any such interest.
Code K. Look-back interest—income forecast method. The partnership will report any information you need
to figure the interest due or to be refunded under the
look-back method of section 167(g)(2) for certain property
placed in service after September 13, 1995, and
depreciated under the income forecast method. Use Form
27

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If you received the securities in liquidation of your
partnership interest, your basis in the marketable
securities is equal to the adjusted basis of your
partnership interest reduced by any cash distributed in the
same transaction and increased by any gain recognized
on the distribution of the securities.

not related to rental real estate activities in box 20 using
code D. Your share of qualified rehabilitation expenditures
related to rental real estate activities is reported in box 15
using code E. See the Instructions for Form 3468 for
details. If the partnership is reporting expenditures from
more than one activity, the attached statement will
separately identify the expenditures from each activity.
Combine the expenditures (for Form 3468 reporting)
from box 15, code E, and box 20, code D. The
expenditures related to rental real estate activities (box 15,
code E) are reported on Schedule K-1 separately from
other qualified rehabilitation expenditures (box 20, code
D) because they’re subject to different passive activity
limitation rules. See the Instructions for Form 8582-CR for
details.

TREASURY/IRS AND OMB USE ONLY DRAFT
8866, Interest Computation Under the Look-Back Method
for Property Depreciated Under the Income Forecast
Method, to report any such interest.
Code L. Dispositions of property with section 179 deductions. The partnership will report your share of gain
or loss on the sale, exchange, or other disposition of
property for which a section 179 expense deduction was
passed through to partners with code L. If the partnership
passed through a section 179 expense deduction for the
property, you must report the gain or loss and any
recapture of the section 179 expense deduction for the
property on your income tax return (see the Instructions
for Form 4797 for details). The partnership will provide all
the following information.
1. Description of the property.
2. Date the property was acquired and placed in service.
3. Date of the sale or other disposition of the property.
4. Your share of the gross sales price or amount
realized.

6. Your share of the depreciation allowed or allowable.
7. Your share of the section 179 expense deduction (if
any) passed through for the property and the
partnership’s tax year(s) in which the amount was
passed through. To figure the amount of depreciation
allowed or allowable for Form 4797, line 22, add to the
amount from item 6, above, the amount of your share
of the section 179 expense deduction, reduced by any
unused carryover of the deduction for this property.
This amount may be different from the amount of
section 179 expense you deducted for the property if
your interest in the partnership has changed.
8. If the disposition is due to a casualty or theft, a
statement providing the information you need to
complete Form 4684.
9. If the sale was an installment sale, any information
you need to complete Form 6252, Installment Sale
Income. The partnership will separately report your
share of all payments received for the property in
future tax years. See the Form 6252 instructions for
details.
Code M. Recapture of section 179 deduction. The
partnership will report your share of any recapture of the
section 179 expense deduction if business use of any
property for which the section 179 expense deduction was
passed through to partners dropped to 50% or less. If this
occurs, the partnership must provide the following
information.
• Your share of the depreciation allowed or allowable
(not including the section 179 expense deduction).
• Your share of the section 179 expense deduction (if
any) passed through for the property and the
partnership’s tax year(s) in which the amount was
passed through. Reduce this amount by the portion, if
any, of your unused (carryover) section 179 expense
deduction for this property.
28

Code O. Section 453(l)(3) information. The
partnership will report any information you need to figure
the interest due under section 453(l)(3) with respect to the
disposition of certain timeshares and residential lots on
the installment method. If you’re an individual, report the
interest on Schedule 2 (Form 1040), Part II, line 14.
Code P. Section 453A(c) information. The partnership
will report any information you need to figure the interest
due under section 453A(c) with respect to certain
installment sales. See Pub. 537, Installment Sales, for
more information on section 453A(c). This information
must include the following from each Form 6252 where
the partner’s share of the selling price, including
mortgages and other debts, is greater than $150,000.
• Description of property.
• Date acquired.
• Date property sold.
• Selling price, including mortgages and other debts
(not including interest, whether stated or unstated).
• Mortgages, debts, and other liabilities the buyer
assumed or took the property subject to.
• Gross profit.
• Contract price.
• Gross profit percentage.
• Current-year payments and deemed payments
received during the year, not including interest,
whether stated or unstated.
• Origination-year payments and deemed payments
received during the year, not including interest
whether stated or unstated.
• Prior-year payments, not including interest whether
stated or unstated.
• Installment sale income.
• Character of the income—capital or ordinary.

See section 453A(c) for information on how to compute
the interest charge on the deferred tax liability. The section
453A interest charge is reported on the “Other taxes” line
of your tax returns. See Interest on Deferred Tax in Pub.
537 for additional details on how to compute the section
453A(c) interest.

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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5. Your share of the cost or other basis plus the expense
of sale.

Code N. Business interest expense (BIE). For tax
years beginning after November 12, 2020, the partnership
will report your share of the partnership’s deductible BIE
for inclusion in the separate loss class for computing any
basis limitation (defined in section 704(d) and Regulations
section 1.163(j)-6(h)). This information is necessary if your
losses are limited under section 704(d). Deductible BIE is
reported elsewhere on Schedule K-1 and the total amount
is reported here for information only and was already
included as a deduction on another line of your
Schedule K-1. Included in the code N information is a
statement providing the allocation of the BIE already
deducted by the partnership by line number on
Schedule K-1.
Any EBIE not deductible under section 163(j) will be
included in box 13, code K, for inclusion in the basis
limitation and isn’t reported here. See Worksheet for
Adjusting the Basis of a Partner’s Interest in the
Partnership for additional information about computing the
loss limitation.

TREASURY/IRS AND OMB USE ONLY DRAFT
Code Q. Section 1260(b) information. The partnership
will report any information you need to figure the interest
due under section 1260(b). If the partnership had gain
from certain constructive ownership transactions, your tax
liability must be increased by the interest charge on any
deferral of gain recognition under section 1260(b). Report
the interest on Schedule 2 (Form 1040), Part II, line 17z.
Enter “1260(b)” and the amount of the interest in the
space to the left of line 17z. See section 1260(b) for
details, including how to figure the interest.

Code S. Capital construction fund (CCF) nonqualified
withdrawals. The partnership will report your share of
nonqualified withdrawals from a CCF. These withdrawals
are taxed separately from your other gross income at the
highest marginal ordinary income or capital gains tax rate.
Attach a statement to your federal income tax return to
show your computation of both the tax and interest for a
nonqualified withdrawal. Include the tax and interest on
Schedule 2 (Form 1040), Part II, line 17z. In the space to
the left of line 17z, enter the amount of tax and interest
and “CCF.” See Pub. 595 for details.
Code T. Depletion information—oil and gas. This is
your share of gross income from the property, your share
of production for the tax year, and other information
needed to figure your depletion deduction for oil and gas
wells. The partnership should also allocate to you a share
of the adjusted basis of each partnership oil or gas
property. See the 2022 Pub. 535, available at
IRS.gov/pub/irs-prior/p535--2022.pdf, for details on how to
figure your depletion deduction.
Code U. Section 743(b) basis adjustment. The
partnership will provide your section 743(b) adjustment,
net of cost recovery, by asset grouping. See Section
743(b) adjustments, earlier.
Code V. Unrelated business taxable income. The
partnership will report any information you need to figure
unrelated business taxable income under section 512(a)
(1) (but excluding any modifications required by section
512(b), paragraphs (8) through (15)) for a partner that’s a
tax-exempt organization.
Tip: A partner is required to notify the partnership of its
tax-exempt status.
Code W. Precontribution gain (loss). If the partnership
distributed any property with precontribution gain or loss
to any partner other than the contributing partner, and the
date of the distribution was within 7 years of the date the
property was contributed to the partnership, the
contributing partner must recognize a gain or loss under
section 704(c)(1)(B). If the partnership made such a
distribution during its tax year, it’ll enter code W in box 20
of the contributing partner’s Schedule K-1 and attach a
statement providing the amount of the partner’s
precontribution gain (loss) and identifying the character of
the gain or loss (for example, capital gain (loss) or section
1231 gain (loss)). Report the precontribution gain or loss
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code X. Payment obligations including guarantees
and deficit obligations (DROs). If a partnership has
checked the box in item K3, this indicates that you or a
person related to you has a payment obligation with
respect to the partnership’s liabilities. The attached
statement for box 20, code X, reflects the ending balance
of each payment obligation that was included in the
aggregate amount reported in box 20 under code X. For
purposes of box 20, code X, a payment obligation is
defined as an obligation under Regulations section
1.752-2(b)(1) that is recognized under Regulations
sections 1.752-2(b)(3)(i)(A) and (B) (such as a recognized
guarantee or an obligation to restore a deficit capital
account upon liquidation), and a related person is defined
as a related person as defined in Regulations section
1.752-4(b).
Code Y. Net investment income (NII). The partnership
may use code Y to report information you may need to
determine your NIIT under section 1411 that isn’t reported
elsewhere on Schedule K-1 or K-3. Code Y is used to
report information not provided elsewhere on
Schedule K-3 (or an attachment) regarding income from
CFCs and passive foreign investment companies (PFICs)
the stock of which is owned by the partnership. For CFCs
and PFICs that you treat as qualified electing funds
(QEFs), the information that’s relevant to you will depend
on whether you, the partnership, or a lower-tier entity has
made an election under Regulations section 1.1411-10(g)
with respect to the CFC or QEF. For example, if the
partnership made an election under Regulations section
1.1411-10(g) with respect to a CFC the stock of which is
owned by the partnership, and the relevant income and
deduction items derived from that CFC are reported
elsewhere on the Schedule K-3, then you won’t need the
information provided using code Y to complete your Form
8960.
If you’re an individual who is a U.S. citizen or resident,
or a domestic trust or estate, follow the Instructions for
Form 8960 to figure and report your NII and AGI or MAGI.
Corporate partners aren’t subject to the NIIT. See
Regulations sections 1.1411-1 through -10 for details.
Code Z. Section 199A information. Generally, you may
be allowed a deduction of up to 20% of your net qualified
business income (QBI) plus 20% of your qualified REIT
dividends, also known as section 199A dividends, and
qualified PTP income from your partnership. The
partnership will provide the information you need to figure
your deduction. Use one of these forms to figure your QBI
deduction.
1. Use Form 8995, Qualified Business Income
Deduction Simplified Computation, if all of the
following apply.
a. You have QBI, section 199A dividends, or PTP
income (defined below).
b. Your 2025 taxable income before the QBI
deduction is equal to or less than $197,300
($394,600 if married filing jointly).
29

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Code R. Interest allocable to production expenditures. The partnership will report any information you
need relating to interest you’re required to capitalize under
section 263A for production expenditures. See
Regulations sections 1.263A-8 through -15 for details.

on Form 8949 and/or Schedule D (Form 1040) or Form
4797 in accordance with the information provided by the
partnership.

TREASURY/IRS AND OMB USE ONLY DRAFT
c. You aren’t a patron in a specified agricultural or
horticultural cooperative.

Use the information provided by your partnership to
complete the appropriate form listed above. For definitions
and more information, see the instructions for Form 8995
or 8995-A, as appropriate.
QBI/qualified PTP items subject to partner-specific
determinations. The amounts reported to you reflect
your distributive share of items from the partnership’s
trade(s), business(es), or aggregation(s), and may include
items that aren’t includible in your calculation of the QBI
deduction. When determining QBI or qualified PTP
income, you must include only those items that are
qualified items of income, gain, deduction, and loss
included or allowed in determining taxable income for the
tax year. To determine your QBI or your qualified PTP
income amounts and for information on where to report
them, see the instructions for Form 8995 or 8995-A, as
appropriate.
W-2 wages. The amounts reported reflect your
distributive share of the partnership’s W-2 wages allocable
to the QBI of each qualified trade, business, or
aggregation. See the instructions for Form 8995 or
8995-A, as appropriate.
Unadjusted basis immediately after acquisition
(UBIA) of qualified property. The amounts reported
reflect your distributive share of the partnership’s UBIA of
qualified property of each qualified trade, business, or
aggregation. See the instructions for Form 8995 or
8995-A, as applicable.
Section 199A dividends. The amount reported
reflects your distributive share of the partnership’s net
section 199A dividends. See the instructions for Form
8995 or 8995-A, as applicable.
Patrons of specified agricultural or horticultural
cooperatives. If the partnership was a patron of an
agricultural or horticultural cooperative (specified
cooperative), you must use Form 8995-A to figure your
QBI deduction. You must also complete Schedule D (Form
8995-A), Special Rules for Patrons of Agricultural or
Horticultural Cooperatives, to determine your patron
reduction.
QBI items allocable to qualified payments from
specified cooperatives subject to partner-specific
determinations. The amounts reported to you reflect
your distributive share of items from the partnership’s
trade(s), business(es), or aggregation(s), and include
items that may not be includible in your calculation of the
QBI deduction and patron reduction. When determining
QBI items allocable to qualified payments, you must
include only qualified items that are included or allowed in
determining taxable income for the tax year. To determine
your QBI items allocable to qualified payments, see the
Instructions for Form 8995-A.
W-2 wages allocable to qualified payments from
specified cooperatives. The amounts reported reflect
your distributive share of the partnership’s W-2 wages
allocable to the qualified payments of each qualified trade,
30

Code AA. Section 704(c) information. The partnership
will show the portion of income or deduction items
allocated to you under section 704(c). These items are
included elsewhere in other income or deduction items on
Schedule K-1.
Code AB. Section 751 gain (loss). This code is used to
report the partner’s share of gain or loss on the sale of the
partnership interest subject to taxation at ordinary income
tax rates.
Note: For foreign transferors, the information for code AB
must also have been reported to you on Schedule K-3,
Part XIII. See the Partner’s Instructions for Schedule K-3
(Form 1065).
Caution: In addition to the information reported in box 20
for codes AC and AD, the partnership may separately
report in boxes 9b and 9c the amount of collectibles (28%)
gain (loss) and unrecaptured section 1250 gain flowing
through the partnership.
Code AC. Section 1(h)(5) collectibles gain. This code
is used to report the partner’s share of gain on the sale of
the partnership interest subject to taxation at the rate for
collectible assets as defined in section 1(h)(5).
Code AD. Section 1(h)(6) unrecaptured section 1250
gain. This code is used to report the partner’s share of
gain on the sale of the partnership interest subject to
taxation at the rate for unrecaptured section 1250 gain
assets as defined in section 1(h)(6).
Note: The information reported for codes AB, AC, and AD
is also reported by the partnership on Part IV of Form
8308. Partnerships are required to furnish transferor and
transferee partners with Form 8308 with Parts I through III
filled out. Partnerships may, but aren’t required to, furnish
transferor and transferee partners with Form 8308 with
Part IV filled out. Even if this information is reported to a
partner on multiple forms, it must only be reported on the
partner’s tax return once. For details, see Form 8308 and
its instructions.
Code AE. Excess taxable income. If the partnership
was required to file Form 8990, it may determine it has
excess taxable income. Report the amount of excess
taxable income in column (f) of Form 8990, Schedule A,
line 43, if you’re required to file Form 8990. See the
Instructions for Form 8990 for additional information.
Code AF. Excess business interest income. If the
partnership is required to file Form 8990, it may determine
it has excess business interest income. Enter the amount
of excess business interest income in column (g) of Form
8990, Schedule A, line 43, if you’re required to file Form
8990. See the Instructions for Form 8990 for additional
information.
Code AG. Gross receipts for section 448(c).
Regulations section 1.163(j)-2(d)(2)(iii) requires that
Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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2. Use Form 8995-A, Qualified Business Income
Deduction, if you don’t meet all three of the above
requirements.

business, or aggregation. See the Instructions for Form
8995-A.
Section 199A(g) deduction from specified
cooperatives. The amount reported reflects your
distributive share of the partnership’s net section 199A(g)
deduction. See the Instructions for Form 8995-A.

partners in a partnership each include a share of
partnership gross receipts in proportion to the partner’s
share of gross income under section 703 (unless the
partnership is treated as one person under the
aggregation rules of section 448(c)). Partnerships with
current-year gross receipts (defined in Temporary
Regulations section 1.448-1T(f)(2)(iv)) greater than $5
million are required to report to their partners their
distributive shares of current-year gross receipts, as well
as their distributive shares of gross receipts for the 3
immediately preceding tax years. If a partnership and a
partner are treated as a single employer under the section
448(c) aggregation rules, and the partnership has
current-year gross receipts greater than $5 million, then
the partnership should also report its total current-year
gross receipts, as well as its total gross receipts for the 3
immediately preceding tax years, to that partner. See
IRS.gov/Newsroom/FAQs-Regarding-the-AggregationRules-Under-Section-448c2-That-Apply-to-theSection-163j-Small-Business-Exemption.
If a partner needs gross receipts information from a
partnership in order to figure the gross receipts test under
section 448(c), and the partnership didn’t report gross
receipts on the Schedule K-1, the partner should request
this information from the partnership.
Code AH. Noncash charitable contributions. If the
partnership made a noncash charitable contribution, your
share of the charitable contribution equal to the amount of
the partnership’s adjusted basis in the property is limited
to your outside basis and is reported here. See section
704(d)(3). Additionally, your share of the excess of the
FMV over the adjusted basis of noncash and capital gain
property contributions is reported here.
Code AI. Interest and tax on deferred compensation
to partners. The partnership will provide your share of
interest and additional tax on compensation deferred
under a section 409A nonqualified deferred compensation
plan that doesn’t meet the requirements of section 409A.
See section 409A(a)(1)(B) to figure the interest and
additional tax on this income. Report this interest and tax
on Schedule 2 (Form 1040), Part II, line 17h. This income
is included in the amount in either box 4a or 4b of
Schedule K-1.
Code AJ. Excess business loss limitation. If the
partnership has deductions attributable to a business
activity, it’ll provide a statement showing your distributive
share of the aggregate gross income or gain, and
aggregate deductions, from the business activity of all the
partnership’s trades or businesses. You can use this,
along with other information, to figure any excess
business loss limitation that may apply. See section 461(l)
and Form 461 and its instructions for details.
Code AK. Gain from mark-to-market election. If a
partnership is a trader in securities, commodities, or both,
and has properly elected under section 475(f) to mark to
market the securities, the commodities, or both, the
partnership reports ordinary gain or loss from the
securities or commodities (or both securities and
commodities) trading activities separately from any other
ordinary gain or loss.

Partner's Inst. for Sch. K-1 (Form 1065) (2025)

Code AL. Section 721(c) partnership. If the
partnership is a section 721(c) partnership, the
partnership should include the amounts relating to any
remedial items made under the remedial allocation
method (described in Regulations sections 1.704-3(d)
and -3(d)(5)(iii)) with respect to section 721(c) property
allocable to each partner. The partnership will include a
separate code AL for the total remedial income, if any,
allocated to the U.S. transferor; total gain recognized due
to an acceleration event; or total gain recognized due to a
section 367 transfer reflected in columns (c), (d), and (e),
respectively, of Schedule G (Form 8865), Part II. Only the
amount of the total remedial income allocated to the U.S.
transferor will be included in box 1 of Schedule K-1, Part
III. Any recognized gain due to an acceleration event or
section 367 transfer must be separately reported by the
U.S. transferor on its own federal income tax return. For all
other partners of the section 721(c) partnership, a
separate code AL is used to provide the remedial items
allocated to that partner relating to section 721(c) property
that was taken into account to determine box 1 of
Schedule K-1, Part III. See Regulations sections
1.721(c)-3 and -6.
Code AM. Section 1061 information. The partnership
will furnish to the partners any information needed to
figure their capital gains with respect to an applicable
partnership interest. See Section 1061 Reporting
Instructions in Pub. 541.
Code AN. Farming and fishing business. If the
partnership is involved in a farming or fishing business, it
will report your distributive share of gross income and
gains, as well as the losses and deductions attributable to
such business activities. See section 1301.
Code AO. PTP information. The partnership will provide
any information a PTP needs to determine whether it
meets the 90% qualifying income test of section 7704(c)
(2).
Tip: A partner is required to notify the partnership of its
status as a PTP.
Code AP. Inversion gain. The partnership will provide a
statement showing the amounts of each type of income or
gain that’s included in inversion gain. The partnership has
included inversion gain in income elsewhere on
Schedule K-1. Inversion gain is also reported under code
AP because your taxable income and alternative minimum
taxable income can’t be less than the inversion gain. Also,
your inversion gain (a) isn’t taken into account in figuring
the net operating loss (NOL) for the tax year or the NOL
that can be carried over to each tax year, (b) may limit your
credits, and (c) is treated as income from sources within
the United States for the foreign tax credit. See section
7874 for details.
Code AQ. Conservation reserve program payments.
Individuals who received social security retirement or
disability benefits, and are partners in farm partnerships
that receive conservation reserve program payments,
don’t pay self-employment tax on their portion of the
payments. The partnership will report your portion of the
conservation reserve program payments in box 20 using
code AQ. See Schedule SE (Form 1040) for information
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on excluding the payment from your calculation of
self-employment tax.
Code AR. IRA disclosure. If the partnership reported an
amount in box 20, code V, the partnership also reported
an IRA partner’s unique EIN in box 20, code AR. See the
Instructions for Form 990-T; and Pub. 598, Tax on
Unrelated Business Income of Exempt Organizations.
Code AS. Qualifying advanced coal project property
and qualifying gasification project property. Use the
amounts the partnership provides you to figure the
amounts to report in Form 3468, Part II.
Code AT. Qualifying advanced energy project property. Use this amount to figure the amount to report in Form
3468, Part III.
Code AU. Advanced manufacturing investment property. Use this amount to figure the amount to report in
Form 3468, Part IV.

Code AW. Reportable transactions. The partnership
will provide any information you need to complete a
disclosure statement for reportable transactions in which
the partnership participates. If the partnership participates
in a transaction that must be disclosed on Form 8886,
Reportable Transaction Disclosure Statement, both you
and the partnership may be required to file Form 8886 for
the transaction. The determination of whether you’re
required to disclose a transaction of the partnership is
based on the category(ies) under which the transaction
qualifies for disclosure and is determined by you and the
partnership. You may have to pay a penalty if you’re
required to file Form 8886 and don’t do so. See the
Instructions for Form 8886 for details.
Code AX. Corporate alternative minimum tax (CAMT).
A partnership that is furnishing information needed for a
partner to determine its distributive share of the
partnership’s adjusted financial statement income will use
code AX.
Code AY. Foreign partners, Form 8990, Schedule A.
The partnership will provide the information needed to
complete Form 8990, Schedule A, for foreign partners
which are required to report their allocable share of EBIE,
excess taxable income, and excess business interest
income, if any, that’s attributable to income effectively
connected with a U.S. trade or business. When required,
the partnership will make this report on an attached

32

Code AZ. Reimbursement of preformation expenditures. Code AZ represents the reimbursement the
partnership made to you for certain preformation capital
expenditures, reported by the partnership as an exception
to the disguised sales rules. See Regulations section
1.707-4(d).
Codes BA through BD. Reserved for future use.
Code ZZ. Other. Any other information you may need to
file your return not shown elsewhere on Schedule K-1.
Sale of qualified farmland property. The partnership
will provide the information you need to make an election
under section 1062 to pay in installments the tax from the
gain from the sale or exchange of qualified farmland
property to qualified farmers. You must attach Form 1062,
Schedule A (Form 1062), and a copy of the covenant to
your income tax return. See section 1062 and the
Instructions for Form 1062 for additional information.

Box 21. Foreign Taxes Paid or
Accrued

Foreign taxes paid or accrued reduce a partner’s basis
and are limited to basis. Don’t use this amount to
complete your Form 1116, Foreign Tax Credit; or Form
1118, Foreign Tax Credit—Corporations. See
Schedule K-3 to complete your Form 1116 or 1118.

Box 22. More Than One Activity for
At-Risk Purposes

When the partnership has more than one activity for
at-risk purposes, it’ll check this box and attach a
statement. Use the information in the attached statement
to correctly figure your at-risk limitation. For more
information, see At-Risk Limitations, earlier.

Box 23. More Than One Activity for
Passive Activity Purposes

When the partnership has more than one activity for
passive activity purposes, it’ll check this box and attach a
statement. Use the information in the attached statement
to correctly figure your passive activity limitation. For more
information, see Passive Activity Limitations, earlier.

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Code AV. Clean electricity investment property. Use
this amount to figure the amount to report in Form 3468,
Part V.

statement to partners that are a foreign corporation or a
nonresident alien or partners that are a partnership
(domestic or foreign) in which the reporting partnership
knows, or has a reason to know, that one or more of the
partners is a foreign corporation or nonresident alien.

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List of Codes for Schedule K-1 (Form 1065)
11. Other income (loss)
Code A. Other portfolio income (loss)
Code B. Involuntary conversions
Code C. Section 1256 contracts and straddles
Code D. Mining exploration costs recapture
Code E. Cancellation of debt
Code F. Section 743(b) positive income adjustments
Codes G and H. Reserved for future use
Code I. Gain (loss) from disposition of oil, gas, geothermal, or other mineral properties (section 59(e))
Code J. Recoveries of tax benefit items
Code K. Gambling gains and losses
Code L. Any income, gain, or loss to the partnership from a distribution under section 751(b)
Code M. Gain eligible for section 1045 rollover (replacement stock purchased by partnership)
Code N. Gain eligible for section 1045 rollover (replacement stock not purchased by the partnership)
Code O. Sale or exchange of QSB stock with section 1202 exclusion
Code P. Gain or loss on disposition of farm recapture property and other items to which section 1252 applies
Code Q. Gain or loss on Fannie Mae or Freddie Mac qualified preferred stock
Code R. Specially allocated ordinary gain (loss)
Code S. Non-portfolio capital gain (loss)
Codes T through X. Reserved for future use
Code ZZ. Other
13. Other deductions
Code A. Cash contributions (60%)
Code B. Cash contributions (30%)
Code C. Noncash contributions (50%)
Code D. Noncash contributions (30%)
Code E. Capital gain property to a 50% organization (30%)
Code F. Capital gain property (20%)
Code G. Contributions (100%)
Code H. Investment interest expense
Code I. Deductions—royalty income
Code J. Section 59(e)(2) expenditures
Code K. Excess business interest expense (EBIE)
Code L. Deductions—portfolio income (other)
Code M. Amounts paid for medical insurance
Code N. Educational assistance benefits
Code O. Dependent care benefits
Code P. Preproductive period expenses
Code Q. Reserved for future use
Code R. Pensions and IRAs
Code S. Reforestation expense deduction
Codes T through U. Reserved for future use
Code V. Section 743(b) negative income adjustments
Code W. Soil and water conservation
Code X. Film, television, and theatrical production expenditures
Code Y. Expenditures for removal of barriers
Code Z. Itemized deductions
Code AA. Contributions to a capital construction fund (CCF)
Code AB. Penalty on early withdrawal of savings
Code AC. Interest expense allocated to debt-financed distributions
Code AD. Interest expense on working interest in oil or gas
Code AE. Deductions—portfolio income
Codes AF through AJ. Reserved for future use
Code ZZ. Other
14. Self-employment earnings (loss)
Note: If you have a section 179 deduction or any partner-level deductions, see page 21 before completing Schedule SE (Form
1040).

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Box Number
Code A. Net earnings (loss) from self-employment
Code B. Gross farming or fishing income
Code C. Gross nonfarm income
15. Credits

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Partner's Inst. for Sch. K-1 (Form 1065) (2025)

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Code A. Zero-emission nuclear power production credit
Code B. Credit for production from advanced nuclear power facilities
Code C. Low-income housing credit (section 42(j)(5)) from post-2007 buildings
Code D. Low-income housing credit (other) from post-2007 buildings
Code E. Qualified rehabilitation expenditures (rental real estate)
Code F. Other rental real estate credits
Code G. Other rental credits
Code H. Undistributed capital gains credit
Code I. Biofuel producer credit
Code J. Work opportunity credit
Code K. Disabled access credit
Code L. Empowerment zone employment credit
Code M. Credit for increasing research activities
Code N. Credit for employer social security and Medicare taxes
Code O. Backup withholding
Code P. Unused investment credit from the qualifying advanced coal project credit or qualifying gasification project credit
allocated from cooperatives
Code Q. Unused investment credit from the qualifying advanced energy project credit allocated from cooperatives
Code R. Unused investment credit from the advanced manufacturing investment credit allocated from cooperatives
Code S. Unused investment credit from the clean electricity investment credit allocated from cooperatives
Code T. Unused investment credit from the energy credit allocated from cooperatives
Code U. Unused investment credit from the rehabilitation credit allocated from cooperatives
Code V. Advanced manufacturing production credit
Code W. Clean electricity production credit
Code X. Clean fuel production credit
Code Y. Clean hydrogen production credit
Code Z. Orphan drug credit
Code AA. Enhanced oil recovery credit
Code AB. Renewable electricity production credit
Code AC. Biodiesel, renewable diesel, or sustainable aviation fuels credit
Code AD. New markets credit
Code AE. Small employer pension plan startup costs credit and contributions credit
Code AF. Small employer auto-enrollment credit
Code AG. Small employer military spouse participation credit
Code AH. Credit for employer-provided childcare facilities and services
Code AI. Low sulfur diesel fuel production credit
Code AJ. Qualified railroad track maintenance credit
Code AK. Credit for oil and gas production from marginal wells
Code AL. Distilled spirits credit
Code AM. Energy efficient home credit
Code AN. Reserved for future use
Code AO. Alternative fuel vehicle refueling property credit
Code AP. Clean renewable energy bond credit
Code AQ. New clean renewable energy bond credit
Code AR. Qualified energy conservation bond credit
Code AS. Qualified zone academy bond credit
Code AT. Qualified school construction bond credit
Code AU. Build America bond credit
Code AV. Credit for employer differential wage payments
Code AW. Carbon oxide sequestration credit
Code AX. Carbon oxide sequestration credit recapture
Code AY. New clean vehicle credit
Code AZ. Credit for qualified commercial clean vehicles
Code BA. Credit for small employer health insurance premiums
Code BB. Employer credit for paid family and medical leave
Code BC. Eligible credits from transferor(s) under section 6418

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Codes BD through BG. Reserved for future use
Code ZZ. Other
17. Alternative minimum tax (AMT) items
Code A. Post-1986 depreciation adjustment
Code B. Adjusted gain or loss
Code C. Depletion (other than oil & gas)
Code D. Oil, gas, & geothermal—gross income
Code E. Oil, gas, & geothermal—deductions
Code F. Other AMT items
18. Tax-exempt income and nondeductible expenses
Code A. Tax-exempt interest income
Code B. Other tax-exempt income
Code C. Nondeductible expenses
19. Distributions
Code A. Cash and marketable securities
Code B. Distribution subject to section 737
Code C. Other property
Code D. Deemed distributions of money—decreases in partner’s share of liabilities
Code E. Reserved for future use
Code F. Distributions of cash or marketable securities for performing services
Code G. Distributions of property other than cash or marketable securities for performing services
20. Other information
Code A. Investment income
Code B. Investment expenses
Code C. Fuel tax credit information
Code D. Qualified rehabilitation expenditures (other than rental real estate)
Code E. Basis of energy property
Code F. Recapture of low-income housing credit for section 42(j)(5) partnerships
Code G. Recapture of low-income housing credit for other partnerships
Code H. Recapture of investment credit
Code I. Recapture of other credits
Code J. Look-back interest—completed long-term contracts
Code K. Look-back interest—income forecast method
Code L. Dispositions of property with section 179 deductions
Code M. Recapture of section 179 deduction
Code N. Business interest expense (BIE)
Code O. Section 453(l)(3) information
Code P. Section 453A(c) information
Code Q. Section 1260(b) information
Code R. Interest allocable to production expenditures
Code S. Capital construction fund (CCF) nonqualified withdrawals
Code T. Depletion information—oil and gas
Code U. Section 743(b) basis adjustment
Code V. Unrelated business taxable income
Code W. Precontribution gain (loss)
Code X. Payment obligations including guarantees and deficit obligations (DROs)
Code Y. Net investment income (NII)
Code Z. Section 199A information
Code AA. Section 704(c) information
Code AB. Section 751 gain (loss)
Code AC. Section 1(h)(5) collectibles gain
Code AD. Section 1(h)(6) unrecaptured section 1250 gain
Code AE. Excess taxable income
Code AF. Excess business interest income
Code AG. Gross receipts for section 448(c)
Code AH. Noncash charitable contributions
Code AI. Interest and tax on deferred compensation to partners
Code AJ. Excess business loss limitation
Code AK. Gain from mark-to-market election
Code AL. Section 721(c) partnership

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Box Number

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Code AM. Section 1061 information
Code AN. Farming and fishing business
Code AO. PTP information
Code AP. Inversion gain
Code AQ. Conservation reserve program payments
Code AR. IRA disclosure
Code AS. Qualifying advanced coal project property and qualifying gasification project property
Code AT. Qualifying advanced energy project property
Code AU. Advanced manufacturing investment property
Code AV. Clean electricity investment property
Code AW. Reportable transactions
Code AX. Corporate alternative minimum tax (CAMT)
Code AY. Foreign partners, Form 8990, Schedule A
Code AZ. Reimbursement of preformation expenditures
Codes BA through BD. Reserved for future use
Code ZZ. Other

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Partner's Inst. for Sch. K-1 (Form 1065) (2025)