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Schedule K-1 1065

Tax Year 2012

Partner's Share of Income from Partnership
This worksheet is used if the taxpayer and/or spouse was a partner in a partnership to calculate the income and expenses reported on Form Schedule K-1 1065.

 

Tax Treatment of Partnership Income
A partnership is a "flow-through" entity which means the partners pay taxes on their pro rata share of the partnership's income, regardless of whether the income is actually distributed to the partners. This income is considered earned income, and self-employment taxes are imposed.

 

Identifying a Partnership
If two or more persons own and operate an unincorporated business together, it is defined as a partnership by default, and the taxpayer must report the income and expenses as required by law for a partnership. If the taxpayer and his or her spouse own a business together, they may elect to treat the business differently. See Husband and Wife Business for more details.

 

Alternative Forms
The taxpayer may need to use a different worksheet to report their business income and expenses, as follows:

  • Schedule K-1 1120S - If the taxpayer received a Schedule K-1 as a shareholder, use this worksheet instead of the Schedule K-1 1065 worksheet.
  • Husband and Wife Business - If the taxpayer and spouse owned a business together, see this article to determine which worksheet should be used.

Related Forms
The following forms are automatically generated as required depending on the information entered on this worksheet:

Important Note: The actual amounts of loss and deductions the taxpayer may claim on their tax return may be less than the actual amounts reported on Schedule K-1 depending on the application of the at-risk and passive activity rules.

 

For additional information, see the 2011 Partner's Instructions for Schedule K-1 (Form 1065).

Reporting Multiple Schedule K-1's
Each Schedule K-1 (1065) should be reported on a separate worksheet. After completing the first Schedule K-1 (1065) worksheet, click "Add" next to "Schedule K-1 (1065) Partner's Share" from the Worksheets page to open a new Schedule K-1 (1065) worksheet and add it to the return.
Part I – Information About the Partnership
Partnership Name, Address, & EIN Enter the Partnership Name, Address, and Employment Identification number, if applicable.
Checkboxes Check the first box if the box on the top of the K-1 indicates this is a final K-1.

 

Check the second box if the box in Part 1, Box D indicates this is a publicly traded partnership (PTP).

Part II – Information About the Partner
Taxpayer or Spouse Business Owner Identification
Select whether this Schedule K-1 is for the taxpayer or spouse. The appropriate name will autopopulate.

 

If the taxpayer and spouse own an unincorporated business together, see Husband and Wife Business to determine which worksheet should be used, and how to enter information into this worksheet, if applicable.

 

Special Note for Married Partners: If both the taxpayer and the spouse are partners of the same partnership, each will receive his or her own Schedule K-1. Each Schedule K-1 must be reported separately on its own worksheet even though the information may be identical.

State Returns Resident Return
Select "Yes" if the user wants the information entered on this federal Schedule K-1 (1065) worksheet incorporated into the taxpayer's resident state return. Otherwise, select "No".

 

Nonresident or Part-Year Return
Select "Yes" if the user wants the information entered on this federal Schedule K-1 (1065) worksheet incorporated into the taxpayer's nonresident or part-year resident state return. Otherwise, select "No".

Investment At Risk Investment in Business At Risk
Select "All investment is at risk" if the taxpayer meets the requirements which exempt the limitation of business losses from the at risk rules.

 

Some Investment Not At Risk
Otherwise, select "Some investment not at risk". If this selection is made, the following information must also be entered:

  • Beginning Adjusted Basis - Enter the taxpayer's beginning adjusted basis in the partnership, which can be found on Line 10b of the previous year's Form 6198.

  • Increases to Basis - Enter the taxpayer's increases in basis in the partnership, which can be found in box 16 of the Schedule K-1 with either code A or B.

  • Decreases to Basis - Enter the taxpayer's increases in basis in the partnership, which can be found in box 16 of the Schedule K-1 with either code C, D, or E.

See the Partner's Instructions accompanying the Schedule K-1 for further directions on properly calculating the basis.

 

See Form 6198 for the details and requirements to meet these tests of exemption from the at risk rules.

 

Note: Form 6198 will be automatically added to this return if applicable.

Material Participation Material Participation
Select "Yes" if this business meets any of the following requirements, which exempt the limitation of business losses from the passive activity rules:
  • The business was not a rental activity, and the taxpayer meets one of the tests for material participation,
  • The business was a rental activity, but the activity is one of the 5 exceptions of rental activities, and the taxpayer meets one of the tests for material participation.
  • The business was a rental real estate activity, and the taxpayer was a real estate professional, or
  • The taxpayer meets the exception for an oil or gas activity.

Otherwise, select "No".

 

See Form 8582 for the details and requirements to meet these tests of exemption from the passive activity rules.

 

Note: Form 8582 will be automatically added to this return if applicable.

Active Participation Select "Yes" if the taxpayer meets the requirements of active participation as described below. Otherwise, select "No".

 

Do not select "Yes" if the taxpayer is a Limited Partner - See special allowance below for details.

 

Do not select "Yes" if the taxpayer is using this worksheet to report royalty income.

 

Active Participation
The taxpayer and spouse must have owned at least 10% of the rental property during the entire tax year and made management decisions in a significant and bona fide sense. Management decisions that may count as active participation include:

  • Approving new tenants,
  • Deciding on rental terms,
  • Arranging repairs and maintenance,
  • Approving capital or repair expenditures, and
  • Other similar decisions.

Note: The requirements for active participation are less stringent than the requirements for material participation.

 

Special Allowance
If the taxpayer marks "Yes", the taxpayer will be eligible to deduct up to $25,000 in passive loss from nonpassive income, adjusted by the taxpayer's Modified Adjusted Gross Income. Limited partners are not treated as actively participating in a partnership's rental real estate activities regardless of their actual participation. The special allowance is not available to limited partners.

 

For more details and information, see Form 8582.

Type of Partner Select whether the taxpayer is a domestic or foreign partner.
Prior Year
Unallowed Loss
Enter the prior year loss for this partnership from Worksheet 5, column (c) of the previous year's Form 8582, if applicable.
Partner's Capital Account Analysis Enter the following information exactly as it is entered in Box L on the Form Schedule K-1 (1065):
  • Beginning capital balance
  • Capital contributed during the year
  • Current year increase or decrease
  • Withdrawals and disbursements
  • Ending capital balance
Part III – Partner's Share of Current Year Income, Deductions, Credits and Other Items
Enter the amounts from the boxes in the Schedule K-1 Form 1065 the taxpayer received into the same line numbers in this section of the worksheet. Use the pulldown lists to select the corresponding code and then enter the amount in the boxes to the right when applicable.
Line 1 Ordinary Business Income or Loss
Enter the amount from Box 1. Use a minus sign before the amount if this amount is a loss.
Line 2 Net Rental Real Estate Income or Loss
Enter the amount from Box 2. Use a minus sign before the amount if this amount is a loss.

 

This amount may or may not be passive activity income or loss depending on the taxpayer's information entered above.

Line 3 Other Net Rental Income or Loss
Enter the amount from Box 3. Use a minus sign before the amount if this amount is a loss.

 

This amount is passive activity income or loss for all partners.

Line 4 Guaranteed Payments to Partner
Enter the amount from Box 4. Use a minus sign before the amount if this amount is a loss.

 

This amount is not passive activity income.

Line 5 Interest Income
Enter the amount from Box 5. Use a minus sign before the amount if this amount is a loss.

 

This amount is portfolio income and is not passive activity income.

Line 6a Ordinary Dividends
Enter the amount from Box 6a. Use a minus sign before the amount if this amount is a loss.

 

This amount is portfolio income and is not passive activity income.

Line 6b Qualified Dividends
Enter the amount from Box 6b. Use a minus sign before the amount if this amount is a loss.

 

This amount is portfolio income and is not passive activity income.

Line 7 Royalties
Enter this amount on a new Schedule E worksheet, line 3b, if applicable.
Line 8a Net Short Term Capital Gain or Loss
Enter the amount from Box 8a. Use a minus sign before the amount if this amount is a loss.

 

This amount is portfolio income and is not passive activity income.

Line 9a Net Long Term Capital Gain or Loss
Enter the amount from Box 9a. Use a minus sign before the amount if this amount is a loss.

 

This amount is portfolio income and is not passive activity income.

Line 9b Collectibles (28%) Gain or Loss
Enter the amount from Box 9b. Use a minus sign to show a loss.

 

This amount is portfolio income and is not passive activity income.

Line 11 Other Income or Loss
Select the Code from the dropdown list, and enter the amount from Box 11. Use a minus sign before the amount if this amount is a loss.
Line 12 Section 179 Deduction
Enter the amount of Section 179 deduction reported in Box 12.
Line 13 Other Deductions
Select the Code from the dropdown list, and enter the amount from Box 13. Enter each line in this box separately. Use a minus sign before the amount if this amount is a loss.
Line 14 Self-Employment Earnings or Loss
Select the Code from the dropdown list, and enter the amount from Box 14. Use a minus sign before the amount if this amount is a loss.

 

Schedule SE will automatically be added to the return if required.

Line 15 Credits and Credit Recapture
Select the Code from the dropdown list, and enter the amount from Box 15. Enter each line in this box separately. Use a minus sign before the amount if this amount is a loss.
Line 17 Alternative Minimum Tax (AMT) Items
Select the Code from the dropdown list, and enter the amount from Box 17. Enter each line in this box separately. Use a minus sign before the amount if this amount is a loss.
Line 18 Tax-Exempt Income and Non-Deductible Expenses
Select the Code from the dropdown list, and enter the amount from Box 18. Enter each line in this box separately. Use a minus sign before the amount if this amount is a loss.
Line 20 Other Information
Select the Code from the dropdown list, and enter the amount from Box 20. Enter each line in this box separately. Use a minus sign before the amount if this amount is a loss.
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