Deductions

Line 8 - Charitable Contributions

The partnership will give you a schedule that shows the amount of contributions subject to the 50%, 30%, and 20% limitations. For more details, see the Instructions for Schedule A (Form 1040).

If property other than cash is contributed and if the claimed deduction for one item or group of similar items of property exceeds $5,000, the partnership must give you a copy of Form 8283, Noncash Charitable Contributions, to attach to your tax return. Do not deduct the amount shown on this form. It is the partnership's contribution. Instead, deduct the amount shown on line 8 of your Schedule K-1 (Form 1065).

If the partnership provides you with information that the contribution was property other than cash and does not give you a Form 8283, see the Instructions for Form 8283 for filing requirements. Do not file Form 8283 unless the total claimed deduction for all contributed items of property exceeds $500.

Charitable contribution deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Line 9 - Section 179 Expense 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. Use Part I of Form 4562 to figure your allowable section 179 expense deduction from all sources. Report the amount on line 12 of Form 4562 allocable to a passive activity from the partnership using the Instructions for Form 8582. However, if the box in Item H is checked, report this amount following the rules for Publicly traded partnerships on page 4. If the amount is not a passive activity deduction, report it on Schedule E (Form 1040), Part II, column (j).

Line 10 - Deductions Related to Portfolio Income

Amounts entered on this line are deductions that are clearly and directly allocable to portfolio income (other than investment interest expense and section 212 expenses from a REMIC). Generally, you should enter line 10 amounts on Schedule A (Form 1040), line 22. See the Instructions for Schedule A, lines 22 and 27, for more information. However, enter deductions allocable to royalties on Schedule E (Form 1040), line 18. For the type of expense, write From Schedule K-1 (Form 1065).

These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Line 11 - Other Deductions

Amounts on this line are deductions not included on lines 8, 9, 10, 17g, and 18b, such as:

• Itemized deductions (Form 1040 filers enter on Schedule A (Form 1040)).

  Note: 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 notify you. You will have to complete your own Form 4684.

• Any penalty on early withdrawal of savings.
• Soil and water conservation expenditures. See section 175 for limitations on the amount you are allowed to deduct.
• 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.
• Any amounts paid during the tax year for insurance that constitutes medical care for you, your spouse, and your dependents. On line 28 of Form 1040, you may be allowed to deduct up to 60% of such amounts, even if you do not itemize deductions. If you do itemize deductions, enter on line 1 of Schedule A (Form 1040) any amounts not deducted on line 28 of Form 1040.
• Payments made on your behalf to an IRA, qualified plan, simplified employee pension (SEP), or a SIMPLE IRA plan. See Form 1040 instructions for line 23 to figure your IRA deduction. Enter payments made to a qualified plan, SEP, or SIMPLE IRA plan on Form 1040, line 29. 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.
• 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. See Notice 89-35, 1989-1 C.B. 675, for details.
• Interest paid or accrued on debt properly allocable to your share of a working interest in any oil or gas property (if your liability is not limited). If you did not materially participate in the oil or gas activity, this interest is investment interest reportable as described below; otherwise, it is trade or business interest.
• Contributions to a capital construction fund (CCF). The deduction for a CCF investment is not taken on Schedule E (Form 1040). Instead, you subtract the deduction from the amount that would normally be entered as taxable income on line 39 (Form 1040). In the margin to the left of line 39, write "CCF" and the amount of the deduction.

The partnership should give you a description and the amount of your share for each of these items.

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 the Instructions for Form 8582-CR (or Form 8810) for more information.

Also, if you are entitled to claim more than one listed general business credit (investment credit, work opportunity credit, welfare-to-work credit, credit for alcohol used as fuel, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, Indian employment credit, credit for employer social security and Medicare taxes paid on certain employee tips, orphan drug credit, and credit for contributions to selected community development corporations), you must complete Form 3800, General Business Credit, in addition to the credit forms identified below. If you have more than one credit, see the Instructions for Form 3800.

Line 12a - Low-Income Housing Credit

Your share of the partnership's low-income housing credit is shown on line 12a. Any allowable credit is entered on Form 8586, Low-Income Housing Credit.

The partnership will report separately on line 12a(1) that portion of the low-income housing credit to which section 42(j)(5) applies. All other low-income housing credits will be reported on line 12a(2).

If part or all of the credit reported on line 12a(1) or 12a(2) is attributable to additions to qualified basis of property placed in service before 1990, the partnership will attach a statement to tell you the amount of the credit on each line that is attributable to property placed in service (a) before 1990 and (b) after 1989.

Keep a separate record of the amount of low-income housing credit from each of these sources so that you will be able to correctly compute any recapture of low-income housing credit that may result from the disposition of all or part of your partnership interest. For more information, see the Instructions for Form 8586.

Line 12b - Qualified Rehabilitation Expenditures Related to Rental Real Estate Activities

The partnership should identify your share of the partnership's rehabilitation expenditures from each rental real estate activity. Enter the expenditures on the appropriate line of Form 3468, Investment Credit, to figure your allowable credit.

Line 12c - Credits (Other Than Credits Shown on Lines 12a and 12b) Related to Rental Real Estate Activities

The partnership will identify the type of credit and any other information you need to compute credits from rental real estate activities (other than the low-income housing credit and qualified rehabilitation expenditures).

Line 12d - Credits Related to Other Rental Activities

The partnership will identify the type of credit and any other information you need to compute credits from rental activities other than rental real estate activities.

Line 13 - Other Credits

The partnership will identify the type of credit and any other information you need to compute credits other than on lines 12a through 12d. Expenditures qualifying for the (a) rehabilitation credit from other than rental real estate activities, (b) energy credit, or (c) reforestation credit will be reported to you on line 25.

Credits that may be reported on line 12c, 12d, or 13 (depending on the type of activity they relate to) include the following:

• Credit for backup withholding on dividends, interest income, and other types of income. Include the amount the partnership reports to you in the total that you enter on Form 1040, line 59.
• Nonconventional source fuel credit.
• Qualified electric vehicle credit (Form 8834).
• Unused credits from cooperatives.
• Work opportunity credit (Form 5884).
• Welfare-to-work credit (Form 8861).
• Credit for alcohol used as fuel (Form 6478).
• Credit for increasing research activities (Form 6765).
• Enhanced oil recovery credit (Form 8830).
• Disabled access credit (Form 8826).
• Renewable electricity production credit (Form 8835).
• Empowerment zone employment credit (Form 8844).
• Indian employment credit (Form 8845).
• Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846).
• Orphan drug credit (Form 8820).
• New markets credit (Form 8874).
• Credit for contributions to selected community development corporations (Form 8847).
• General credits from an electing large partnership. Report these credits on Form 3800, line 1o.

Investment Interest

If the partnership paid or accrued interest on debts properly allocable to investment property, the amount of interest you are allowed to deduct may be limited.

For more information and the special provisions that apply to investment interest expense, see Form 4952, Investment Interest Expense Deduction, and Pub. 550, Investment Income and Expenses.

Line 14a - Interest Expense on Investment Debts

Enter this amount on Form 4952, line 1, along with your investment interest expense from Schedule K-1, line 11, if any, and from other sources to figure how much of your total investment interest is deductible.

Lines 14b(1) and 14b(2) - Investment Income and Investment Expenses

Use the amounts on these lines to figure the amounts to enter in Part II of Form 4952.

The amounts shown on lines 14b(1) and 14b(2) include only investment income and expenses included on lines 4a, 4b, 4c, 4f, and 10 of this Schedule K-1. The partnership should attach a schedule that shows the amount of any investment income and expenses included on any other lines of this Schedule K-1. Be sure to take these amounts into account, along with the amounts on lines 14b(1) and 14b(2) and your investment income and expenses from other sources, when figuring the amounts to enter in Part II of Form 4952.

Self-Employment

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.

Line 15a - Net Earnings (Loss) From Self-Employment

If you are 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. Do not reduce net earnings from self-employment by any separately stated deduction for health insurance expenses.

If the amount on this line is a loss, enter only the deductible amount on Schedule SE (Form 1040). See Limitations on Losses, Deductions, and Credits beginning on page 2.

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.

Line 15b - Gross Farming or Fishing Income

If you are an individual partner, enter the amount from this line, as an item of information, on Schedule E (Form 1040), Part V, line 41. Also use this amount to figure net earnings from self-employment under the farm optional method on Schedule SE (Form 1040), Section B, Part II.

Line 15c - Gross Nonfarm Income

If you are an individual partner, use this amount to figure net earnings from self-employment under the nonfarm optional method on Schedule SE (Form 1040), Section B, Part II.

Adjustments and Tax Preference Items

Use the information reported on lines 16a through 16e (as well as your adjustments and tax preference items from other sources) to prepare your Form 6251, Alternative Minimum Tax - Individuals; Form 4626, Alternative Minimum Tax - Corporations; or Schedule I of Form 1041, U.S. Income Tax Return for Estates and Trusts.

Note: A partner that is a corporation subject to alternative minimum tax must notify the partnership of its status.

Lines 16d(1) and 16d(2) - Gross Income From, and Deductions Allocable to, Oil, Gas, and Geothermal Properties

The amounts reported on these lines include only the gross income from, and deductions allocable to, oil, gas, and geothermal properties that are included on line 1 of Schedule K-1. The partnership should have attached a schedule that shows any income from or deductions allocable to such properties that are included on lines 2 through 11 and line 25 of Schedule K-1. Use the amounts reported on lines 16d(1) and 16d(2) and the amounts on the attached schedule to help you figure the net amount to enter on line 14e of Form 6251 (line 4t of Schedule I, Form 1041; line 2o of Form 4626).

Line 16e - Other Adjustments and Tax Preference Items

Enter the information on the schedule attached by the partnership for line 16e on the applicable lines of Form 6251, Form 4626, or Schedule I of Form 1041.

Foreign Taxes

Use the information on lines 17a through 17h and attached schedules to figure your foreign tax credit. For more information, see Form 1116, Foreign Tax Credit (Individual, Estate, Trust, or Nonresident Alien Individual), and its instructions; Form 1118, Foreign Tax Credit - Corporations, and its instructions; and Pub. 514, Foreign Tax Credit for Individuals.

Other

Lines 18a and 18b - Section 59(e)(2) Expenditures

The partnership will show on line 18a the type of qualified expenditures to which an election under section 59(e) may apply. It will identify the amount of the expenditure on line 18b. If there is more than one type of expenditure, the amount of each type will be listed on an attachment.

Generally, section 59(e) allows each partner to elect to deduct certain expenses ratably over the number of years in the applicable period rather than deduct the full amount in the current year. Under the election, you may deduct circulation expenditures ratably over a 3-year period. Research and experimental expenditures and mining exploration and development costs qualify for a writeoff period of 10 years. Intangible drilling and development costs may be deducted over a 60-month period, beginning with the month in which such costs were paid or incurred.

If you make this election, these items are not treated as adjustments or tax preference items for purposes of the alternative minimum tax. Make the election on Form 4562.

Because each partner decides whether to make the election under section 59(e), the partnership cannot provide you with the amount of the adjustment or tax preference item related to the expenses listed on line 18b. You must decide both how to claim the expenses on your return and compute the resulting adjustment or tax preference item.

Line 19 - Tax-Exempt Interest Income

You must 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 must include this amount on Form 1040, line 8b. Increase the adjusted basis of your interest in the partnership by this amount.

Line 20 - Other Tax-Exempt Income

Increase the adjusted basis of your interest in the partnership by the amount shown on line 20, but do not include it in income on your tax return.

Line 21 - Nondeductible Expenses

The nondeductible expenses paid or incurred by the partnership are not deductible on your tax return. Decrease the adjusted basis of your interest in the partnership by this amount.

Line 22 - Distributions of Money (Cash and Marketable Securities)

Line 22 shows the distributions the partnership made to you of cash and certain marketable securities. The marketable securities are included at their fair market value (FMV) on the date of distribution (minus your share of the partnership's gain on the securities distributed to you). If the amount shown on line 22 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 the Schedule D for your return. However, the gain may be ordinary income. For details, see Pub. 541.

The partnership will separately identify both of the following:

• The FMV of the marketable securities when distributed (minus your share of the gain on the securities distributed to you).
• The partnership's adjusted basis of those securities immediately before the distribution.

Decrease the adjusted basis of your interest in the partnership (but not below zero) by the amount of cash distributed to you and the partnership's adjusted basis of the distributed securities. Advances or drawings of money or property against your distributive 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
• 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.

If, within 5 years of a distribution to you of marketable securities, you contributed appreciated property (other than those securities) to the partnership and the FMV of those securities exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. For property contributed after June 8, 1997, the 5-year period is generally extended to 7 years. See section 737 for details.

Line 23 - Distributions of Property Other Than Money

Line 23 shows the partnership's adjusted basis of property other than money immediately before the property was distributed to you. In addition, the partnership should report the adjusted basis and FMV of each property distributed. Decrease the adjusted basis of your interest in the partnership by the amount of your basis in the distributed property. 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 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.

If you contributed appreciated property to the partnership within 5 years of a distribution of other property to you, and the FMV of the other property exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. For property contributed after June 8, 1997, the 5-year period is generally extended to 7 years. See section 737 for details.

Lines 24a and 24b - Recapture of Low-Income Housing Credit

A section 42(j)(5) partnership will report recapture of a low-income housing credit on line 24a. All other partnerships will report recapture of a low-income housing credit on line 24b. Keep a separate record of recapture from each of these sources so that you will be able to correctly compute any recapture of low-income housing credit that may result from the disposition of all or part of your partnership interest. For more information, see Form 8611, Recapture of Low-Income Housing Credit.

Supplemental Information

Line 25

Amounts shown on line 25 include:

1. Taxes paid on undistributed capital gains by a regulated investment company or real estate investment trust. Form 1040 filers enter your share of these taxes on line 65, check the box for Form 2439, and add the words Form 1065.
2. 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.
3. Your share of gross income from the property, share of production for the tax year, etc., 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 Pub. 535 for how to figure your depletion deduction.
4. Recapture of the section 179 expense deduction. If the recapture was caused by a disposition of the property, include the amount on Form 4797, line 17. The recapture amount is limited to the amount you deducted in earlier years.
5. Recapture of certain mining exploration expenditures (section 617).
6. Any information or statements you need to comply with section 6111 (regarding tax shelters) or section 6662(d)(2)(B)(ii) (regarding adequate disclosure of items that may cause an understatement of income tax on your return).
7. Preproductive period farm expenses. You may be eligible to elect to deduct these expenses currently or capitalize them under section 263A. See Pub. 225, Farmer's Tax Guide, and Regulations section 1.263A-4.
8. 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 are an individual, report the interest on Form 1040, line 58. Write 453(l)(3) and the amount of the interest on the dotted line to the left of line 58.
9. Any information you need to figure the interest due under section 453A(c) with respect to certain installment sales. If you are an individual, report the interest on Form 1040, line 58. Write 453A(c) and the amount of the interest on the dotted line to the left of line 58.
10. 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.
11. Any information you need relating to interest expense that you are required to capitalize under section 263A for production expenditures. See Regulations sections 1.263A-8 through 1.263A-15 for more information.
12. Any information you need to figure unrelated business taxable income under section 512(a)(1) (but excluding any modifications required by paragraphs (8) through (15) of section 512(b)) for a partner that is a tax-exempt organization.

    Reminder: A partner is required to notify the partnership of its tax-exempt status.

13. Your share of expenditures qualifying for the (a) rehabilitation credit from other than rental real estate activities, (b) energy credit, or (c) reforestation credit. Enter the expenditures on the appropriate line of Form 3468 to figure your allowable credit.
14. Any information you need to figure your recapture tax on Form 4255, Recapture of Investment Credit. See the Form 3468 on which you took the original credit for other information you need to complete Form 4255.

    You may also need Form 4255 if you disposed of more than one-third of your interest in a partnership.

15. Any information you need to figure your recapture of the qualified electric vehicle credit. See Pub. 535 for details, including how to figure the recapture.
16. Any information you need to figure your recapture of the Indian employment credit. Generally, if the partnership terminated a qualified employee less than 1 year after the date of initial employment, any Indian employment credit allowed for a prior tax year by reason of wages paid or incurred to that employee must be recaptured. For details, see section 45A(d).
17. Nonqualified withdrawals by the partnership from a CCF. These withdrawals are taxed separately from your other gross income at the highest marginal ordinary income or capital gain 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 Form 1040, line 58. To the left of line 58, write the amount of tax and interest and "CCF."
18. Unrecaptured section 1250 gain. Generally, report this amount on line 5 of the Unrecaptured Section 1250 Gain Worksheet in the Schedule D (Form 1040) instructions. However, for an amount passed through from an estate, trust, real estate investment trust, or regulated investment company, report it on line 11 of that worksheet. Report on line 10 of that worksheet any gain from the partnership's sale or exchange of an interest in another partnership that is attributable to unrecaptured section 1250 gain.
19. 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 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, to report any such interest.
20. Any information a publicly traded partnership needs to determine whether it meets the 90% qualifying income test of section 7704(c)(2).

    Reminder: A partner is required to notify the partnership of its status as a publicly traded partnership.

21. Amortizable basis of reforestation expenses and the year paid or incurred. To figure your allowable amortization, including limits that may apply, see section 194 and Pub. 535. Follow the Instructions for Form 8582 to report amortization allocable to a passive activity. However, if the box in Item H is checked, report the amortization following the rules for Publicly traded partnerships on page 4. Report amortization from a trade or business activity in which you materially participated on a separate line in Part II, column (i), of Schedule E (Form 1040).
22. 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 Form 1040, line 58. Write 1260(b) and the amount of the interest on the dotted line to the left of line 58. See section 1260(b) for details, including how to figure the interest.
23. Extraterritorial income exclusion:
    1. Partnership did not claim the exclusion. If the partnership reports your distributive share of foreign trading gross receipts and the extraterritorial income exclusion, the partnership was not entitled to claim the exclusion because it did not meet the foreign economic process requirements. You may qualify for your distributive share of this exclusion because the partnership's foreign trading gross receipts for the tax year were $5 million or less. To qualify for this exclusion, your foreign trading gross receipts from all sources for the tax year also must have been $5 million or less. See Form 8873, Extraterritorial Income Exclusion, for more information. If you qualify for the exclusion, report the exclusion amount in accordance with the instructions on page 6 for line 1, 2, or 3, whichever applies.
    2. Partnership claimed the exclusion. If the partnership reports your distributive share of foreign trading gross receipts but not the amount of the extraterritorial income exclusion, the partnership met the foreign economic process requirements and claimed the exclusion when figuring your distributive share of partnership income. You also may need to know the amount of your distributive share of foreign trading gross receipts from this partnership to determine if you met the $5 million or less exception discussed above for purposes of qualifying for an extraterritorial income exclusion from other sources.

    Note: Upon request, the partnership should furnish you a copy of the partnership's Form 8873 if there is a reduction for international boycott operations, illegal bribes, kickbacks, etc.

24. Any other information you may need to file your return not shown elsewhere on Schedule K-1.

    The partnership should give you a description and the amount of your share for each of these items.

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