If a partnership is a partner in another partnership, it will receive a Schedule K-1 from the other partnership. When this occurs, the basis of the income reported on the K-1 will determine how the income will be reported on the partnership's information return and how it will pass through to the partners on their Schedules K-1.
If the tax year of the partnership differs from the other partnership reporting the K-1, include the ordinary income or loss from the other entity in the tax year in which the other entity's tax year ends.
The partnership can only claim its share of the other partnership's loss (including a capital loss) to
the extent that it does not exceed the adjusted basis of its interest at the end of its tax year.
Here's where to enter the various items reported to the partnership on Schedule K-1 (Form 1065):
Box 1 - Ordinary business income (loss)
If the Schedule K-1 is not from a Publicly Traded Partnership (PTP), Box 1 ordinary income is included in the partnership's ordinary income, separately identified by each partnership's name, address, and EIN.
From the main menu of the partnership return select:
- Income
- Ordinary Income from Other Prtn., Estates, & Trusts
- New - Enter all the information requested. A supporting statement will be included with the return giving the information about the other entity.
If the Schedule K-1 is from a PTP and Box 1 is income (not loss), this will be reported as other income. From the Main Menu of the partnership return select:
- Schedule K
- Income (Loss)
- Other Income (Loss)
- Other income (loss) - Press the F10 key on your keyboard to open a menu to enter the information about the income. Select New, then enter the description and amount. The description should indicate that the item is from a PTP.
If the Schedule K-1 is from a PTP and Box 1 is a loss, it is suspended until it can be applied to income from the same PTP in a subsequent year or until the PTP interest is disposed of. The partnership will need to keep track of the unallowed loss to ensure it is accounted for in future years. If and when the loss is allowed, follow the preceding step to enter it.
Box 2 - Net rental real estate income (loss)
From the Main Menu of the partnership return select:
- Schedule K
- Income (Loss)
- Net Income (Loss) from Rental Real Estate (Form 8825)
- Other Categories
- Net Gain/Loss from Rental R/E which Partnership is a partner - Enter the amount from Schedule K-1 Box 2.
Box 3 - Other net rental income (loss)
From the Main Menu of the partnership return select:
- Schedule K
- Income (Loss)
- Gross Income From Other Rental Activities
- Gross Income(Loss) From Other Rental Activities - Enter the amount from Schedule K-1 Box 3.
Box 5 - Interest income
Box 6a - Ordinary dividends
Box 6b - Qualified dividends
Box 7 - Royalties
Box 8 - Net short-term capital gain (loss)
Box 9a - Net long-term capital gain (loss)
Box 9b - Collectibles (28%) gain (loss)
Box 9c - Unrecaptured section 1250 gain
Box 10 - Net section 1231 gain (loss)
Box 11 - Other income (loss)
From the Main Menu of the partnership return select:
- Schedule K
- Income (Loss) - Enter each item on its corresponding menu line.
Box 12 - Section 179 deduction
From the Main Menu of the partnership return select:
- Schedule K
- Deductions
- Section 179 Expense Deduction (Form 4562)
- Amount to adjust Section 179 (+/-) - Enter the amount from Schedule K-1 Box 12.
Note: This is a guide to entering a Schedule K-1 (Form 1065) received by a partnership into the partnership's return of income. It is not intended to be tax advice.
Additional Information:
IRS: Instructions for Form 1065 U.S. Return of Partnership Income