Specific Instructions (Schedule D)
Columns (b) and (c) - Date Acquired and Date Sold
Use the trade dates for date acquired and date sold for stocks and bonds traded on an exchange or over-the-counter market. The acquisition date for an asset the partnership held on January 1, 2002, for which it made an election to recognize any gain on a deemed sale, is the date of the deemed sale.
Column (d) - Sales Price
Enter in this column either the gross sales price or the net sales price from the sale. On sales of stocks and bonds, report the gross amount as reported to the partnership by the partnership's broker on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or similar statement. However, if the broker advised the partnership that gross proceeds (gross sales price) less commissions and option premiums were reported to the IRS, enter that net amount in column (d).
Column (e) - Cost or Other Basis
In general, the cost or other basis is the cost of the property plus purchase commissions and improvements and minus depreciation, amortization, and depletion. If the partnership got the property in a tax-free exchange, involuntary conversion, or wash sale of stock, it may not be able to use the actual cash cost as the basis. If the partnership does not use cash cost, attach an explanation of the basis.
If the partnership sold stock, adjust the basis by subtracting all the stock-related nontaxable distributions received before the sale. This includes nontaxable distributions from utility company stock and mutual funds. Also adjust the basis for any stock splits or stock dividends.
If a charitable contribution deduction is passed through to a partner because of a bargain sale of property to a charitable organization, the adjusted basis for determining gain from the sale is an amount that has the same ratio to the adjusted basis as the amount realized has to the fair market value.
See section 852(f) for the treatment of certain load charges incurred in acquiring stock in a mutual fund with a reinvestment right.
If the gross sales price is reported in column (d), increase the cost or other basis by any expense of sale, such as broker's fees, commissions, or option premiums, before making an entry in column (e).
For more details, see Pub. 551, Basis of Assets.
Column (f) - Gain or (Loss)
Make a separate entry in this column for each transaction reported on lines 1 and 6 and any other line(s) that applies to the partnership. For lines 1 and 6, subtract the amount in column (e) from the amount in column (d). Enter negative amounts in parentheses.
Column (g) - 28% Rate Gain or (Loss)
Enter in column (g) only the amount, if any, from Part II, column (f), that is from collectibles gains and losses. A collectibles gain or loss is any long-term gain or deductible long-term loss from the sale or exchange of a collectible that is a capital asset.
Collectibles include works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.
Also include gain (but not loss) from the sale or exchange of an interest in a partnership or trust held for more than 1 year and attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement required under Regulations section 1.1(h)-1(e).
Lines 4 and 9 - Capital Gains and Losses From Other Partnerships, Estates, and Trusts
Enter capital gains (losses) specially allocated to the partnership as a partner in other partnerships and from estates and trusts on Schedule D, line 4 or 9, whichever applies.
Line 10 - Capital Gain Distributions
On line 10, column (f), report as the total amount of (a) capital gain distributions and (b) the partnership's share of undistributed capital gains from a RIC or REIT. On line 10, column (g), report the 28% rate gain portion of these amounts. Report the partnership's share of taxes paid on undistributed capital gains by a RIC or REIT on a statement attached to Form 8865 for Schedule K, line 24 (and the partner's share in the line 25 Supplemental Information space of Schedule K-1).
General Instructions for Schedules K and K-1 - Partners' Shares of Income, Credits, Deductions, Etc.
Important: If the foreign partnership filed Form 1065 or 1065-B, do not complete Schedules K and K-1 on Form 8865. Instead, attach to Form 8865 a copy of the Schedules K and K-1 from Form 1065 or 1065-B.
Schedule K
Schedule K is a summary schedule of all of the partners' shares of the partnership income, credits, deductions, etc. Only Category 1 filers must complete Schedule K.
Schedule K-1
Schedule K-1 is used to report a specific partner's share of the partnership income, credits, deductions, etc.
All Category 1 and 2 filers must complete Schedule K-1 for any direct interest they hold in the partnership. A Category 1 or 2 filer that does not own a direct interest is not required to complete Schedule K-1.
Category 1 filers must also complete Schedule K-1 for each U.S. person that directly owns a 10% or greater direct interest in the partnership.
On Schedule K-1, provide the partner's beginning and year-end percentage interest in partnership profits, capital, deductions, or losses. These percentages should include any interest constructively owned by the filer.
Lines 1 through 23 are the same for both Schedule K and Schedule K-1. However, Schedule K-1 contains information about a particular partner's distributive share, rather than information about the partnership as a whole. Complete lines 1 through 25 for any direct interest that partner owns in the partnership.
Example. Partner A owns a 45% direct interest in foreign partnership (FPS). Partner A also owns 100% of the stock of a domestic corporation (DC), which owns a 10% direct interest in FPS. Therefore, Partner A is considered to own a 55% interest in FPS and is thus a Category 1 filer. When Partner A completes Schedule K-1 for itself, Partner A must report the distributive share of items allocated to Partner A's direct interest of 45% but not any items allocated to DC's 10% interest. When Partner A completes Schedule K-1 for DC (which Partner A must do because DC owns a direct 10% interest), Partner A must report on DC's Schedule K-1 only items allocated to DC's direct 10% interest.
Although the partnership is not subject to income tax, the partners are liable for tax on their shares of the partnership income, whether or not distributed, and must include their share of such items on their tax returns. Allocations of income, gains, losses, deductions, or credits among the partners generally should be made according to the partnership agreement. See section 704 and the regulations thereunder.
Specific Instructions (Schedules K and K-1, Except as Noted)
Note: Generally, Schedules K and K-1 on Form 8865 and Form 1065 are the same. If more guidance is needed to complete Schedules K and K-1 of Form 8865, refer to the Form 1065 instructions.
Special Allocations
An item is specially allocated if it is allocated to a partner in a ratio different from the ratio for sharing income or loss generally.
Report specially allocated ordinary gain (loss) on Schedules K and K-1, line 7. Report other specially allocated items on the applicable lines of the partner's Schedule K-1, with the total amount on the applicable line of Schedule K. For example, specially allocated long-term capital gain is entered on line 4e(1) of the partner's Schedule K-1, and the total is entered on line 4e(1) of Schedule K, along with any net long-term capital gain (or loss) from line 12 column (f), of Schedule D.
Income (Loss)
Line 1 - Ordinary Income (Loss) From Trade or Business Activities
Enter the amount from Schedule B, line 22. Enter the income (loss) without reference to
- the basis of the partners' interests in the partnership,
- the partners' at-risk limitations, or
- the passive activity limitations.
These limitations, if applicable, are determined at the partner level.
If the partnership has more than one trade or business activity, identify on an attachment to Schedule K-1 the amount from each separate activity.
Line 1 should not include rental activity income (loss) or portfolio income (loss).
Line 2 - Net Income (Loss) From Rental Real Estate Activities
Enter the net income (loss) from rental real estate activities of the partnership from Form 8825. Attach this form to Form 8865. If the partnership has more than one rental real estate activity, identify on an attachment to Schedule K-1 the amount attributable to each activity.
Line 3 - Net Income (Loss) From Other Rental Activities
On Schedule K, line 3a, enter gross income from rental activities other than those reported on Form 8825. See Pub. 925, Passive Activity and At-Risk Rules, for a definition of rental activities. Include on line 3a, the gain (loss) from line 18 of Form 4797 that is attributable to the sale, exchange, or involuntary conversion of an asset used in a rental activity other than a rental real estate activity.
On line 3b of Schedule K, enter the deductible expenses of the activity. Attach a schedule of these expenses to Form 8865.
Enter the net income (loss) on line 3c of Schedule K. Enter the partner's share on line 3 of Schedule K-1.
If the partnership has more than one rental activity reported on line 3, identify on an attachment to Schedule K-1 the amount from each activity.
Lines 4a Through 4f - Portfolio Income (Loss)
Enter portfolio income (loss) on lines 4a through 4f.
Do not reduce portfolio income by deductions allocable to it. Report such deductions (other than interest expense) on line 10 of Schedules K and K-1. Interest expense allocable to portfolio income is generally investment interest expense and is reported on line 14a of Schedules K and K-1.
Lines 4a and 4b. Enter only taxable interest and ordinary dividends on these lines. Taxable interest is interest from all sources except interest exempt from tax and interest on tax-free covenant bonds.
Lines 4d, 4e(1), 4e(2), and 4e(3). Enter on line 4d of Schedule K the gain or loss (that is portfolio income (loss) from line 5 of Schedule D plus any short-term capital gain (loss) that is specially allocated to partners. Report a partner's share on line 4d of Schedule K-1.
Enter on line 4e(1) the gain or loss that is portfolio income (loss) from line 12 of Schedule D plus any long-term capital gain (loss) that is specially allocated to partners. Enter on line 4e(2) the gain or loss from line 11 of Schedule D. Enter on line 4e(3) the gains (not losses) from the disposition of assets (excluding property that could qualify for section 1202 gain) held more than 5 years that are portfolio income included on line 12 of Schedule D.
If the income or loss is attributable to more than one activity, report the income or loss amount separately for each activity on an attachment to Schedule K-1 and identify the activity to which the income or loss relates.
If any gain or loss from lines 5, 11, or 12 of Schedule D is from the disposition of nondepreciable personal property used in a trade or business, it may not be treated as portfolio income. Report such gain or loss on line 7 of Schedules K and K-1. .
Line 4f. Report and identify other portfolio income or loss on an attachment for line 4f.
For example, income reported to the partnership from a real estate mortgage investment conduit (REMIC), in which the partnership is a residual interest holder, would be reported on an attachment for line 4f. If the partnership holds a residual interest in a REMIC, report on the attachment for line 4f the partner's share of the following:
- Taxable income (net loss) from the REMIC (line 1b of Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation).
- Excess inclusion (line 2c of Schedules Q (Form 1066)).
- Section 212 expenses (line 3b of Schedules Q (Form 1066)). Do not report these section 212 expenses on line 10 of Schedules K and K-1.
Because Schedule Q (Form 1066) is a quarterly statement, you must follow the Schedule Q instructions to figure the amounts to report to the partner for the partnership's tax year.
Line 5 - Guaranteed Payments to Partners
Guaranteed payments to partners include:
- Payments for salaries, health insurance, and interest deducted by the partnership and reported on Schedule B, line 10; Form 8825; or on Schedule K, line 3b; and
- Payments the partnership must capitalize. See the Instructions for Schedule B, line 10.
Generally, amounts reported on line 5 are not considered to be related to a passive activity. For example, guaranteed payments for personal services paid to a partner would not be passive activity income. Likewise, interest paid to any partner is not passive activity income.
Line 6 - Net Section 1231 Gain (Loss) (Other Than Due to Casualty or Theft)
Enter on line 6 the net section 1231 gain (loss) from Form 4797, line 7. Do not include specially allocated ordinary gains and losses or net gains or losses from involuntary conversions due to casualties or thefts on this line. Instead, report them on line 7. If the partnership has more than one activity, attach a statement to Schedule K-1 that identifies the activity to which the section 1231 gain (loss) relates.
Attach a statement to each Schedule K-1 indicating the aggregate amount of all gains from section 1231 property held more than 5 years. Do not include any gain attributable to straight-line depreciation from section 1250 property. Indicate on the statement that this amount should be included in the partner's computation of qualified 5-year gain only if the amount on the partner's Form 4797, line 7, is more than zero. Do not include any unrecaptured section 1250 gain.
Line 7 - Other Income (Loss)
Use line 7 to report other items of income, gain, or loss not included on lines 1 through 6. If the partnership has more than one activity, identify on an attachment the amount and the activity to which each amount relates.
If the partnership had a gain from the distribution of non-depreciable personal property used in a trade or business and held more than 5 years, show the total of all such gains on an attachment to Schedule K-1. If the gain or loss is attributable to more than one activity, report the gain or loss amount separately for each trade or business activity on an attachment to Schedule K-1 and identify the activity to which the gain or loss relates.
Include the following items on line 7:
- Gains from the disposition of farm recapture property (see Form 4797) and other items to which section 1252 applies.
- Gains from the disposition of an interest in oil, gas, geothermal, or other mineral properties (section 1254).
- Any net gain or loss from section 1256 contracts from Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.
- Recoveries of tax benefit items (section 111).
- Gambling gains and losses subject to the limitations in section 165(d).
- Any income, gain, or loss to the partnership under section 751(b).
- Specially allocated ordinary gain (loss).
- Net gain (loss) from involuntary conversions due to casualty or theft. The amount for this line is shown on Form 4684, Casualties and Thefts, line 38a, 38b, or 39.
The partner's share must be entered on Schedule K-1. 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, do not complete Form 4684 for this type of casualty or theft. Instead, the partner will complete his or her own Form 4684.
- Gain from the sale or exchange of qualified small business stock that is eligible for the 50% section 1202 exclusion. The section 1202 exclusion applies only to qualified small business stock issued after August 10, 1993, and held by the partnership for more than 5 years. Corporate partners are not eligible for the section 1202 exclusion. Additional limitations apply at the partner level. Report the partner's share of section 1202 gain on Schedule K-1. The partner will determine if he or she qualifies for the section 1202 exclusion. Report on an attachment to Schedule K-1 for each sale or exchange the name of the corporation that issued the stock, the partner's share of the partnership's adjusted basis and sales price of the stock, and the dates the stock was bought and sold.
- Gain eligible for section 1045 rollover (replacement stock not purchased by the partnership). Include only gain from the sale or exchange of qualified small business stock the partnership held for more than 6 months but that was not deferred by the partnership under section 1045. A partner (other than a corporation) may be eligible to defer his or her distributive share of this gain under section 1045 if he or she purchases other qualified small business stock during the 60-day period that began on the date the stock was sold by the partnership. Additional limitations apply at the partner level. Report on an attachment to Schedule K-1 for each sale or exchange the name of the corporation that issued the stock, the partner's share of the partnership's adjusted basis and sales price of the stock, and the dates the stock was bought and sold.
Deductions
Line 8 - Charitable Contributions
Enter the total amount of charitable contributions made by the partnership during its tax year on Schedule K. Enter the partner's distributive share on Schedule K-1. On an attachment to Schedules K and K-1, show separately the dollar amount of contributions subject to each of the 50%, 30%, and 20% of adjusted gross income limits. For additional information, see Pub. 526, Charitable Contributions.
Certain contributions made to an organization conducting lobbying activities are not deductible. See section 170(f)(9) for more details.
If the partnership made a qualified conservation contribution, include the FMV of the underlying property before and after the donation and describe the conservation purpose furthered by the donation.
Line 9 - Section 179 Expense Deduction
If the partnership files Form 1065 or 1065-B, it may elect to expense part of the cost of certain tangible property the partnership purchased this year for use in its trade or business or certain rental activities. See Pub. 946, How to Depreciate Property, for a definition of what kind of property qualifies for the section 179 expense deduction and the Instructions for Form 4562 for limitations on the amount of the section 179 expense deduction.
If the foreign partnership received a Schedule K-1 from another partnership reporting a section 179 expense deduction, complete lines 6 through 13 of Form 4562. Report the eligible partners' distributive shares of the amount on line 12 of Form 4562 on Schedule K-1, line 9. An estate or trust is not an eligible partner.
See the instructions for line 25 of Schedule K-1, item 4, for any recapture of a section 179 amount.
Line 10 - Deductions Related to Portfolio Income
Enter on line 10 and attach an itemized list of the deductions clearly and directly allocable to portfolio income (other than interest expense and section 212 expenses from a REMIC). Interest expense related to portfolio income is investment interest expense and is reported on line 14a of Schedules K and K-1. Section 212 expenses from the partnership's interest in a REMIC are reported on an attachment for line 4f of Schedules K and K-1.
No deduction is allowable under section 212 for expenses allocable to a convention, seminar, or similar meeting.
Line 11 - Other Deductions
Use line 11 to report deductions not included on lines 8, 9, 10, 17g, and 18b. On an attachment, identify the deduction and amount and, if the partnership has more than one activity, the activity to which the deduction relates.
Examples of items to be reported on an attachment to line 11 include:
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