Partner’s Instructions for

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.

What’s New

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.

Dec 17, 2025

General Instructions

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

Errors

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

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.

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

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.

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)

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.

Additional Information

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)

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.

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

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 7. Add lines 1, 2, 3e, 4o, 5, and 6.

Section B—Decreases

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

deduction item that’s disallowed is determined on a pro

rata basis.

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)

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 15n, column A. Enter excess business interest

expense (EBIE).

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)

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.

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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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.

Section A—Increases

2.

Acquisitions of partnership interests and contributions of money and property

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

2.

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.

4o.

Total increases (add lines 4a through 4n)

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

4o.

5.

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

5.

6.

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

6.

7.

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

7.

3e.

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

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

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

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

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.

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

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

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

8d.

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

Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership

(continued)

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

negative.)

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

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

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.

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.

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

Passive activities don’t include the following.

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)

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.

Note: Box 23 of Schedule K-1, Part III, will be checked

when a statement is attached.

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)

any other trade or business in which capital isn’t a

material income-producing factor.

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:

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

to see if your deductions, losses, and credits are

limited under the passive activity rules.

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.

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

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.

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)

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

11

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.

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.

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

share of nonrecourse liabilities, partnership-level qualified

nonrecourse financing, and other recourse liabilities for

each activity.

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)

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.

Item M

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)

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.

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

13

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.

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.

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

(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.

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)

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

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).

Box 4c. Total Guaranteed Payments

Amounts on this line include total guaranteed payments

paid to you by the partnership.

are attributable to PTEP in your annual PTEP accounts

with respect to the foreign corporations.

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

15

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.

Box 9c. Unrecaptured Section 1250 Gain

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

Caution: If you have any foreign source net section 1231

gain (loss), see the Partner’s Instructions for Schedule K-3

for additional information.

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)

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 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.

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)

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.

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

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.

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)

Code B. Cash contributions (30%). Report this

amount, subject to the 30% AGI limitation, on Schedule A

(Form 1040), line 11.

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

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.

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)

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.

Codes T through U. Reserved for future use.

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. Qualified film, television, theatrical, and

sound recording production expenses. The

partnership will provide a statement that describes the

qualified film, television, live theatrical, or 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)

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.

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.

21

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 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.

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

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.

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)

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 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 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 X. Clean fuel production credit. Report this

amount on Form 7218; or Form 3800, Part III, line 1q.

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)

23

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 AV. Credit for employer differential wage payments. Report this amount on Form 8932; or Form 3800,

Part III, line 1w.

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

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.

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)

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.

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.

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)

Partnership Interest, earlier. For more details, see Form

8308.

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.

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

basis and FMV of each property distributed to you in a

statement attached to your Schedule K-1.

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)

• 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.

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.

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)

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.

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

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.

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

of sale.

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 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.

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)

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 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.

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)

on Form 8949 and/or Schedule D (Form 1040) or Form

4797 in accordance with the information provided by the

partnership.

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

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