Partner s Instructions for Schedule K-1 (Form 1065-B) Partner s Share of Income (Loss) From an Electing Large Partnership (For Partner s Use Only)

Transcription

1 2008 Partner s Instructions for Schedule K-1 (Form 1065-B) Partner s Share of Income (Loss) From an Electing Large Partnership (For Partner s Use Only) Section references are to the Internal Revenue Code unless otherwise noted. 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. Do not file it with your tax return. The partnership has filed a copy with the IRS. You are 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 that you can claim on your tax return may be less than the amount reported on Schedule K-1. It is the partner s responsibility to consider and apply any applicable limitations. See Limitations on Losses, Deductions, and Credits beginning on page 2 for more information. Electing Large Partnerships (ELPs) This partnership has elected simplified reporting requirements intended to make it simpler for you to report your share of partnership income, credits, deductions, etc. Generally, income, capital gains, credits, and deductions are combined at the partnership level so that the number of partnership items separately reported to partners is reduced. Most limitations and elections affecting partnership income are made by the electing large partnership. rental real estate, and other rental activities are separately reported for each activity in box 9. Income, etc., from other activities (investment and portfolio income and deductions) are reported in boxes 2, 3, 4b, and 6 for both limited and general partners. Errors You must report partnership items shown on your Schedule K-1 (and any attached schedules) the same way that the partnership treated the items on its return. If you believe the partnership has made an error on your Schedule K-1, notify the partnership. Do not change any items on your copy of Schedule K-1. Generally, an adjustment to correct an error will take effect for the tax year in which the partnership actually makes the adjustment. However, if the error involves a change to your distributive share of a partnership item, the partnership should file an amended partnership return and send you a corrected Schedule K-1. If the treatment on your original or amended return is inconsistent with the partnership s treatment, 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. Sale or Exchange of Partnership Interest Department of the Treasury Internal Revenue Service 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, a $50 penalty may be imposed 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. 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 (c)-1T. A nominee who 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. Generally, a partner who sells or exchanges a partnership interest in a A nominee who fails to furnish when For limited partners, income and other section 751(a) exchange must notify the due all the information required by items from the partnership s trade or partnership, in writing, within 30 days of Temporary Regulations section business and rental activities are treated the exchange (or, if earlier, by January (c)-1T, or who furnishes incorrect as being from a trade or business that is a of the calendar year following the information, is subject to a $50 penalty for single passive activity. These items are calendar year in which the exchange each statement for which a failure occurs. reported in boxes 1, 4a, and 5, with most occurred). A section 751(a) exchange is The maximum penalty is $100,000 for all credits being reported in boxes 7 and 8. any sale or exchange of a partnership such failures during a calendar year. If the General partners must make their own interest in which any money or other nominee intentionally disregards the determinations as to whether the activities property received by the partner in requirement to report correct information, are passive for them. Therefore, exchange for that partner s interest is each $50 penalty increases to $100 or, if partnership items from trade or business, attributable to unrealized receivables (as greater, 10% of the aggregate amount of Cat. No W

2 items required to be reported, and the Note. Additional basis adjustments may $100,000 maximum does not apply. Elections apply to partners claiming deductions for Generally, the partnership decides how to depletion. See chapter 9 of Pub. 535 for figure taxable income from its operations. details. International Boycotts However, two elections are made by you Every partnership that had operations in, separately on your income tax return and At-Risk Limitations or related to, a boycotting country, not by the partnership. These elections Generally, if you have (a) a loss or other company, or a national of a country must are made under the following code deduction from any activity carried on as file Form 5713, International Boycott sections. a trade or business or for the production Report. Section 108(b)(5) (income from the of income by the partnership and (b) discharge of indebtedness). If the partnership cooperated with an amounts in the activity for which you are Section 901 (foreign tax credit). international boycott, it must provide you not at risk, you will have to complete with a copy of its Form As a Form 6198, At-Risk Limitations, to figure Change of Tax Year general or limited partner, you must file your allowable loss. If the partnership attaches a statement to your own Form 5713 to report the Schedule K-1 indicating that it has The at-risk rules generally limit the partnership s activities and any other changed its tax year and that you can amount of loss and other deductions that boycott operations that you may have. elect to report your distributive share of you can claim to the amount you could You may lose certain tax benefits if the the income attributable to that change actually lose in the activity. However, if partnership participated in, or cooperated ratably over 4 tax years, see Rev. Proc. you acquired your partnership interest with, an international boycott. See Form , I.R.B. 1036, for details before 1987, the at-risk rules do not apply 5713 and its instructions for more on making the election. To make the to losses from an activity of holding real information. election, you must file Form 8082, Notice property placed in service before 1987 by of Inconsistent Treatment or the partnership. The activity of holding Administrative Adjustment Request, with mineral property does not qualify for this Definitions your income tax return for each of the 4 exception. The partnership should identify tax years. File Form 8082 for this purpose on an attachment to Schedule K-1 the General Partner in accordance with Rev. Proc amount of any losses that are not subject A general partner is a partner who is instead of the Form 8082 instructions. to the at-risk limitations. personally liable for partnership debts. Generally, you are not at risk for Limited Partner Additional Information amounts such as the following. Nonrecourse loans used to finance the A limited partner is a partner in a For more information on the treatment of activity, to acquire property used in the partnership formed under a state limited partnership income, deductions, credits, activity, or to acquire your interest in the partnership law, whose personal liability etc., see the following: activity, that are not secured by your own for partnership debts is limited to the Pub. 541, Partnerships; property (other than the property used in amount of money or other property that Pub. 535, Business Expenses; and the activity). See the instructions for the partner contributed or is required to Pub. 925, Passive Activity and At-Risk Partner s Share of Liabilities on page 6 for contribute to the partnership. Some Rules. the exception for qualified nonrecourse members of other entities, such as To get forms and publications, see the financing secured by real property. domestic or foreign business trusts or instructions for your tax return. Cash, property, or borrowed amounts limited liability companies that are used in the activity (or contributed to the classified as partnerships, may be treated Limitations on Losses, activity, or used to acquire your interest in as limited partners for certain purposes. the activity) that are protected against For example, see Temporary Regulations Deductions, and Credits loss by a guarantee, stop-loss agreement, section T(e)(3), which treats all There are three separate potential or other similar arrangement (excluding members with limited liability as limited limitations on the amount of partnership casualty insurance and insurance against partners for purposes of section 469(h)(2) losses that you can deduct on your return. tort liability). (relating to the passive activity loss These limitations and the order in which Amounts borrowed for use in the limitation rules). you must apply them are as follows: the activity from a person who has an interest basis rules, the at-risk limitations, and the in the activity, other than as a creditor, or Disqualified Person passive activity limitations. Each of these who is related, under section 465(b)(3), to If you are a partner in a partnership limitations is discussed separately below. a person (other than you) having such an holding oil and gas properties, you are a interest. disqualified person if: Basis Rules Generally, you cannot claim your share of You should get a separate statement You are an oil or natural gas retailer a partnership loss (including a capital of income, expenses, etc., for each described in section 613A(d)(2) or crude loss) to the extent that it is greater than activity from the partnership. oil refiner described in section 613A(d)(4) the adjusted basis of your partnership Passive Activity Limitations or interest at the end of the partnership s tax Your average daily production of Section 469 provides rules that limit the year. Any losses and deductions not domestic crude oil and natural gas deduction of certain losses and credits. allowed this year because of the basis exceeds 500 barrels for your tax year in These rules apply to partners who: limit can be carried forward indefinitely which the partnership s tax year ends. Are individuals, estates, trusts, closely and deducted in a later year subject to the See section 776(b) for more details. held corporations (other than S basis limit for that year. corporations), or personal service Note. Disqualified persons must report The partnership is not responsible for corporations and items of income, gain, loss, deduction, keeping the information needed to figure Have a passive activity loss or credit for and credit attributable to partnership oil the basis of your partnership interest. You the tax year. and gas properties as if the special rules can figure the adjusted basis of your Individuals, estates, and trusts. If you for ELPs did not apply. partnership interest by adding items that have a passive activity loss or credit, use increase your basis and then subtracting Form 8582, Passive Activity Loss Nonrecourse Loans items that decrease your basis. Limitations, to figure your allowable Nonrecourse loans are those liabilities of Use the worksheet on page 3 to figure passive losses and Form 8582-CR, the partnership for which no partner bears the basis of your interest in the Passive Activity Credit Limitations, to the economic risk of loss. partnership. figure your allowable passive credits. -2-

3 ! CAUTION If the publicly traded partnership In addition, the partnership is required 2. Rental real estate activities in which (PTP) box on Schedule K-1 is to provide each general partner and you materially participated if you were a checked, do not report passive disqualified person the information real estate professional for the tax year. income (loss) from the partnership on necessary to comply with the passive You were a real estate professional only if Form See page 5 for the special activity rules of section 469. Items of you met both of the following conditions. rules for PTPs. income, gain, loss, credit, etc., must be a. More than half of the personal Corporations. Use Form 8810, separately reported to general partners services you performed in trades or Corporate Passive Activity Loss and for each trade or business, rental real businesses were performed in real Credit Limitations. See the instructions for estate, and other rental activity. property trades or businesses in which more information. Except for the PTP discussion on you materially participated and page 5, the following information b. You performed more than 750 For limited partners of an ELP, all! CAUTION on passive activity limitations hours of services in real property trades income, loss, deductions, and credits applies only to general partners. or businesses in which you materially from trade or business and rental participated. activities generally are reported as being Generally, passive activities include: from a trade or business that is a single 1. Trade or business activities in Note. For a closely held C corporation passive activity. which you did not materially participate (defined in section 465(a)(1)(B)), the However, the determination of and above conditions are treated as met if whether an activity is a passive activity 2. Activities that meet the definition of more than 50% of the corporation s gross must be made by any partner who is rental activities under Temporary receipts were from real property trades or either a: Regulations section T(e)(3) and businesses in which the corporation General partner or Regulations section (e)(3). materially participated. Limited partner who is a disqualified For purposes of this rule, each interest person (as defined on page 2) with Passive activities do not include the in rental real estate is a separate activity, respect to items of income, gain, loss, following. unless you elect to treat all interests in deduction, and credit attributable to 1. Trade or business activities in rental real estate as one activity. For partnership oil and gas properties. which you materially participated. details on making this election, see the Instructions for Schedule E (Form 1040). Worksheet for Adjusting the Basis of a Partner s If you are married filing jointly, either Interest in the Partnership Keep for Your Records you or your spouse must separately meet both of the above conditions, without taking into account services performed by 1. Your adjusted basis at the end of the prior year. Do not enter less the other spouse. than zero. Enter -0- if this is your first tax year A real property trade or business is Increases: any real property development, 2. Money and your adjusted basis in property contributed to the redevelopment, construction, partnership less the associated liabilities (but not less than zero). 2. reconstruction, acquisition, conversion, rental, operation, management, leasing, 3. Your increased share of or assumption of partnership liabilities. or brokerage trade or business. Services (Subtract your share of liabilities shown on your 2007 Schedule K-1 you performed as an employee are not from your share of liabilities shown on your 2008 Schedule K-1 and treated as performed in a real property add the amount of any partnership liabilities you assumed during trade or business unless you owned more the tax year.) than 5% of the stock (or more than 5% of 4. Your share of the partnership s income or gain (including the capital or profits interest) in the tax-exempt income) reduced by any amount included in interest employer. income with respect to the credit to holders of clean renewable 3. Working interests in oil or gas energy bonds, gulf tax credit bonds, or Midwestern tax credit bonds 4. wells. 5. Any gain recognized this year on contributions of property. Do not 4. The rental of a dwelling unit any include gain from transfer of liabilities partner used for personal purposes during Decreases: the year for more than the greater of 14 days or 10% of the number of days that 6. Withdrawals and distributions of money and the adjusted basis of the residence was rented at fair rental property distributed to you from the partnership. Do not include the value. amount of property distributions included in the partner s income 5. Activities of trading personal (taxable income) property for the account of owners of Caution. A distribution may be taxable if the amount exceeds your interests in the activities. adjusted basis of your partnership interest immediately before the distribution. Material participation. You must determine if you (a) materially participated 7. Your share of the partnership s nondeductible expenses that are in each trade or business activity held not capital expenditures through the partnership and (b) were a 8. Your share of the partnership s losses and deductions (including real estate professional (defined above), capital losses) in each rental real estate activity held through the partnership. All 9. Your adjusted basis in the partnership at end of this tax year. (Add lines 1 through 5 and subtract lines 6 through 8 from the total. If zero or less, enter -0-.) Caution. The deduction for your share of the partnership s losses and deductions is limited to your adjusted basis in your partnership interest. If you entered zero on line 9 and the amount computed for line 9 was less than zero, a portion of your share of the partnership losses and deductions may not be deductible (see Basis Rules on page 2 for more information.) -3- determinations of material participation are made 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.

4 Corporations should refer to the avoid the passive loss or credit qualifying estates), trusts, and Instructions for Form 8810 for the material limitations. corporations cannot actively participate. participation standards that apply to them. 2. You do the work in your capacity as You are not considered to actively an investor and you are not directly Individuals (other than limited participate in a rental real estate activity if involved in the day-to-day operations of partners). If you are an individual (either at any time during the tax year your the activity. Examples of work done as an a general partner or a limited partner who interest (including your spouse s interest) investor that would not count toward owned a general partnership interest at all in the activity was less than 10% (by material participation include: times during the tax year), you materially value) of all interests in the activity. participated in an activity only if one or a. Studying and reviewing financial Active participation is a less stringent more of the following apply. statements or reports on operations of the requirement than material participation. activity. 1. You participated in the activity for You may be treated as actively b. Preparing or compiling summaries more than 500 hours during the tax year. participating if you participated, for or analyses of the finances or operations 2. Your participation in the activity for example, in making management of the activity for your own use. the tax year constituted substantially all decisions or arranging for others to c. Monitoring the finances or the participation in the activity of all provide services (such as repairs) in a operations of the activity in a individuals (including individuals who are significant and bona fide sense. nonmanagerial capacity. not owners of interests in the activity for Management decisions that can count as the tax year). active participation include approving new Effect of determination. Income 3. You participated in the activity for tenants, deciding rental terms, approving (loss), deductions, and credits from an more than 100 hours during the tax year, capital or repair expenditures, and other activity are nonpassive if you determine and your participation in the activity for similar decisions. that: the tax year was not less than the You materially participated in a trade or An estate is a qualifying estate if the participation in the activity of any other business activity of the partnership or decedent would have satisfied the active individual (including individuals who were You were a real estate professional in a participation requirement for the activity not owners of interests in the activity) for rental real estate activity of the for the tax year the decedent died. A the tax year. partnership. qualifying estate is treated as actively 4. The activity was a significant participating for tax years ending less participation activity for the tax year, and If you determine that you did not than 2 years after the date of the you participated in all significant materially participate in a trade or decedent s death. participation activities (including activities business activity of the partnership or if The maximum special allowance that outside the partnership) during the year you have income (loss), deductions, or single individuals and married individuals for more than 500 hours. A significant credits from a rental activity of the filing a joint return can qualify for is participation activity is any trade or partnership (other than a rental real $25,000. The maximum is $12,500 for business activity in which you participated estate activity in which you materially married individuals who file separate for more than 100 hours during the tax participated as a real estate professional), returns and who live apart all times during year and in which you did not materially the amounts from that activity are the year. The maximum special allowance participate under any of the material passive. Report passive income (losses), for which an estate can qualify is $25,000 participation tests (other than this test 4). deductions, and credits as follows. reduced by the special allowance for 5. You materially participated in the 1. If you have an overall gain (the which the surviving spouse qualifies. activity for any 5 tax years (whether or not excess of income over deductions and If your modified adjusted gross income consecutive) during the 10 tax years that losses, including any prior year unallowed (defined below) is $100,000 or less immediately precede the tax year. loss) from a passive activity, report the ($50,000 or less if married filing 6. The activity was a personal service income, deductions, and losses from the separately), your loss is deductible up to activity and you materially participated in activity as indicated in the instructions for the amount of the maximum special the activity for any 3 tax years (whether or the boxes in which those items were allowance referred to in the preceding not consecutive) preceding the tax year. reported. paragraph. If your modified adjusted A personal service activity involves the 2. If you have an overall loss (the gross income is more than $100,000 performance of personal services in the excess of deductions and losses, (more than $50,000 if married filing fields of health, law, engineering, including any prior year unallowed loss, separately), the special allowance is architecture, accounting, actuarial over income) or credits from a passive limited to 50% of the difference between science, performing arts, consulting, or activity, report the income, deductions, $150,000 ($75,000 if married filing any other trade or business in which losses, and credits from all passive separately) and your modified adjusted capital is not a material income-producing activities using the Instructions for Form gross income. When modified adjusted factor or Form 8582-CR (or Form 8810), to gross income is $150,000 or more 7. Based on all the facts and see if your deductions, losses, and credits ($75,000 or more if married filing circumstances, you participated in the are limited under the passive activity separately), there is no special allowance. activity on a regular, continuous, and rules. Modified adjusted gross income is your substantial basis during the tax year. Special allowance for rental real estate adjusted gross income figured without activities. If you actively participated in taking into account the following. Work counted toward material a rental real estate activity, you may be Any passive activity loss. participation. Generally, any work that able to deduct up to $25,000 of the loss Any rental real estate loss allowed you or your spouse do in connection with from the activity from nonpassive income. under section 469(c)(7) to real estate an activity held through a partnership This special allowance is an exception professionals (as defined previously). (where you own your partnership interest to the general rule disallowing losses in Any overall loss from a publicly traded at the time the work is done) is counted excess of income from passive activities. partnership. toward material participation. However, The special allowance is not available if Any taxable social security or work in connection with the activity is not you were married, filed a separate return equivalent railroad retirement benefits. counted toward material participation if for the year, and did not live apart from Any deductible contributions to an IRA either of the following applies. your spouse at all times during the year. or certain other qualified retirement plans 1. The work is not the sort of work that under section 219. owners of the activity would usually do Only individuals and qualifying estates The domestic production activities and one of the principal purposes of the can actively participate in a rental real deduction. work that you or your spouse does is to estate activity. Estates (other than The student loan interest deduction. -4-

5 The tuition and fees deduction. applied against passive income from the Example. You have a Schedule E loss The deduction for one-half of same PTP in later years. If the partner s of $12,000 (current year losses plus prior self-employment taxes. entire interest in the PTP is completely year unallowed losses) and a Schedule D The exclusion from income of interest disposed of, any unused losses are gain of $7,200. Report the $7,200 gain on from Series EE and I U.S. Savings Bonds allowed in full in the year of disposition. the appropriate line of Schedule D. On used to pay higher education expenses. Schedule E (Form 1040), line 28, report The exclusion of amounts received If you have an overall gain from a PTP, $7,200 of the losses as a passive loss in under an employer s adoption assistance the net gain is nonpassive income. In column (f). Carry forward to 2009 the program. addition, the nonpassive income is unallowed loss of $4,800 ($12,000 Commercial revitalization included in investment income to figure $7,200). deduction. The special $25,000 your investment interest expense If you have unallowed losses from allowance for the commercial deduction. more than one activity of the PTP or from revitalization deduction from rental real the same activity of the PTP that must be Do not report passive income, gains, estate activities is not subject to the active reported on different forms, you must or losses from a PTP on Form participation rules or modified adjusted allocate the unallowed losses on a pro Instead, use the following rules to figure gross income limits discussed above. See rata basis to figure the amount allowed Code Q. Commercial Revitalization and report on the proper form or schedule from each activity or on each form. Deduction on page 11. your income, gains, and losses from passive activities that you held through To allocate and keep a record of Special rules for certain other each PTP you owned during the tax year. TIP the unallowed losses, use activities. If you have net income (loss), 1. Combine any current year income, Worksheets 5, 6, and 7 of Form deductions, or credits from any activity to gains (losses), and any prior year List each activity of the PTP in which special rules apply, the partnership unallowed losses to see if you have an Worksheet 5. Enter the overall loss from will identify the activity and all amounts overall gain (loss) from the PTP. Include each activity in column (a). Complete relating to it on Schedule K-1 or on an only the same types of income and losses column (b) of Worksheet 5 according to attachment. you would include in your net income or its instructions. Multiply the total If you have net income subject to loss from a non-ptp passive activity. See unallowed loss from the PTP by each recharacterization under Temporary Pub. 925 for more details. ratio in column (b) and enter the result in Regulations section T(f) and 2. If you have an overall gain, the net column (c) of Worksheet 5. Then, Regulations section (f), report gain portion (total gain minus total losses) complete Worksheet 6 if all the loss from such amounts according to the is nonpassive income. On the form or the same activity is to be reported on one Instructions for Form 8582 (or Form schedule you normally use, report the net form or schedule. Use Worksheet ). gain portion as nonpassive income and instead of Worksheet 6 if you have more If you have net income (loss), the remaining income and the total losses than one loss to be reported on different deductions, or credits from any of the as passive income and loss. To the left of forms or schedules for the same activity. following activities, treat such amounts as the entry space, enter From PTP. It is Enter the net loss plus any prior year nonpassive and report them as instructed important to identify the nonpassive unallowed losses in column (a) of in these instructions. income because the nonpassive portion is Worksheet 6 (or Worksheet 7 if Working interests in oil and gas wells. included in modified adjusted gross applicable). The losses in column (c) of The rental of a dwelling unit any partner Worksheet 6 (column (e) of Worksheet 7) income for purposes of figuring on Form used for personal purposes during the are the allowed losses to report on the 8582 the special allowance for active year for more than the greater of 14 days forms or schedules. Report both these participation in a non-ptp rental real or 10% of the number of days that the losses and any income from the PTP on estate activity. In addition, the nonpassive residence was rented at fair rental value. the forms and schedules you normally income is included in investment income Trading personal property for the use. when figuring your investment interest account of owners of interests in the 4. If you have an overall loss and you expense deduction on Form 4952, activity. disposed of your entire interest in the PTP Investment Interest Expense Deduction. to an unrelated person in a fully taxable Self-charged interest. The partnership Example. If you have Schedule E transaction during the year, your losses must report any self-charged interest income of $8,000, and a Form 4797 prior (including prior year unallowed losses) income or expense that resulted from year unallowed loss of $3,500 from the allocable to the activity for the year are loans between you and the partnership passive activities of a particular PTP, you not limited by the passive loss rules. A (or between the partnership and another have a $4,500 overall gain ($8,000 fully taxable transaction is one in which partnership in which you have an $3,500). On Schedule E (Form 1040), line you recognize all your realized gain interest). If there was more than one 28, report the $4,500 net gain as (loss). Report the income and losses on activity, the partnership will provide a nonpassive income in column (j). In the forms and schedules you normally statement allocating the interest income column (g), report the remaining use. or expense with respect to each activity. Schedule E gain of $3,500 ($8,000 The self-charged interest rules do not $4,500). On the appropriate line of Form Note. For rules on the disposition of an apply to your partnership interest if the 4797, report the prior year unallowed loss entire interest reported using the partnership made an election under of $3,500. Be sure to enter From PTP to installment method, see the Instructions Regulations section (g) to avoid the left of each entry space. for Form the application of these rules. See the 3. If you have an overall loss (but did Instructions for Form 8582 for more not dispose of your entire interest in the information. PTP to an unrelated person in a fully Publicly traded partnerships. The taxable transaction during the year), the Specific Instructions passive activity limitations are applied losses are allowed to the extent of the separately for items (other than the income, and the excess loss is carried Publicly Traded low-income housing credit and the forward to use in a future year when you rehabilitation credit) from each publicly have income to offset it. Report as a Partnership (PTP) traded partnership (PTP). Thus, a net passive loss on the schedule or form you If the publicly traded partnership box is passive loss from a PTP may not be normally use the portion of the loss equal checked, you are a partner in a publicly deducted from other passive income. to the income. Report the income as traded partnership (PTP) and must follow Instead, a passive loss from a PTP is passive income on the form or schedule the rules under Publicly traded suspended and carried forward to be you normally use. partnerships discussed above. -5-

6 Partner s Share of Boxes 1 Through 9 Box 2. Taxable Income (Loss) From Other Activities Liabilities The amounts shown in boxes 1 through 9 reflect your share of income, loss, This amount is not subject to the passive The partnership will show your share of deductions, credits, etc., from the activity limitations. Report the amount as the partnership s nonrecourse liabilities, partnership. These amounts do not take follows. partnership-level qualified nonrecourse into consideration the following If the amount is income, report it on financing, and other liabilities as of the limitations. Schedule E (Form 1040), line 28, column end of the partnership s tax year. If you The adjusted basis of your partnership (j). terminated your interest in the partnership interest. If the amount is a loss, report it on during the tax year, the amounts should The amount for which you are at risk. Schedule A (Form 1040), line 28. reflect the share that existed immediately The passive activity limitations. Note. If the amount of interest included before the total disposition. A partner s For information on these provisions, in box 2 includes interest from the credit other liability is any partnership liability see Limitations on Losses, Deductions, to holders of clean renewable energy for which a partner is personally liable. and Credits beginning on page 2. bonds, gulf tax credit bonds, or Use the total of the three amounts for Midwestern tax credit bonds, the computing the adjusted basis of your For individuals, the following partnership will attach a statement to partnership interest. instructions explain how to report the Schedule K-1 showing your distributive amounts shown in the boxes. For all other share of interest income from these Generally, you can use only the entities, report the amounts in the boxes credits. No adjustment to your basis in the amounts shown next to Qualified as instructed on your income tax return. partnership is permitted with respect to nonrecourse financing and Other to The line numbers in these instructions the above bond credits under section figure your amount at risk. Do not include are references to forms in use for 54(l)(3)(B). Because the basis in your any amounts that are not at risk if such calendar year If you file your tax partnership interest is increased by your amounts are included in either of these return on a calendar year basis, but your share of the interest income from these categories. partnership files a return for a fiscal year, credits, you must reduce your bases by If your partnership is engaged in two or enter the amounts shown in the boxes on the same amount to offset the increase. more different types of activities subject to your tax return for the year in which the See Line 4 of the Worksheet for Adjusting the at-risk provisions, or a combination of partnership s fiscal year ends. For the Basis of a Partner s Interest in the at-risk activities and any other activity, the example, if the partnership s tax year Partnership on page 3. partnership should give you a statement ends on June 30, 2009, report the showing your share of nonrecourse amounts in the boxes on your 2009 Box 3. Qualified Dividends liabilities, partnership-level qualified income tax return. Report this amount on lines 9a and 9b of nonrecourse financing, and other Form liabilities for each activity. If you have losses, deductions, or credits from a prior year that were not Note. Qualified dividends are excluded Qualified nonrecourse financing. deductible or usable because of certain from investment income, but you can Qualified nonrecourse financing generally limitations, such as the basis rules or the elect to include part or all of these includes financing for which no one is at-risk limitations, take them into account amounts in investment income. See the personally liable for repayment that is in determining your net income, loss, or instructions for line 4g of Form 4952, borrowed for use in an activity of holding credits for this year. However, except for Investment Interest Expense Deduction, real property and that is loaned or passive activity losses and credits, do not for important information on making this guaranteed by a federal, state, or local combine the prior-year amounts with any election. government or borrowed from a amounts shown on this Schedule K-1 to qualified person. Qualified nonrecourse Box 4a. Net Capital Gain or get a net figure to report on any financing secured by real property used in supporting schedules, statements, or (Loss) From Passive Activities an activity of holding real property that is forms attached to your return. Instead, Limited partners only. The net capital subject to the at-risk rules is treated as an report the amounts separately on the gain (loss) reported in box 4a, is treated amount at risk. attached schedule, statement, or form on as being from a trade or business that is a Qualified persons. Qualified persons a year-by-year basis. single passive activity. If a net capital gain include any persons actively and regularly For amounts other than those shown is reported in box 4a, report the gain on engaged in the business of lending on Schedule K-1, enter each item on a Schedule D (Form 1040), line 12, column money, such as a bank or savings and separate line of Part II of Schedule E (f). loan association. Qualified persons (Form 1040). If a loss is reported in box 4a, report it generally do not include related parties following the Form 8582 instructions to (unless the nonrecourse financing is Box 1. Taxable Income (Loss) figure how much of the loss can be commercially reasonable and on From Passive Activities reported on Schedule D (Form 1040), line substantially the same terms as loans Limited partners only. Any amount 12, column (f). However, if the PTP box is involving unrelated persons), the seller of reported in box 1 is treated as being from checked, report the loss following the the property, or a person who receives a a trade or business that is a single rules for Publicly traded partnerships. fee for the partnership s investment in the passive activity. Report this amount as real property. Box 4b. Net Capital Gain or follows. (Loss) From Other Activities See Pub. 925 for more information on If income is reported in box 1, report qualified nonrecourse financing. the income on Schedule E (Form 1040), Net capital gain or (loss) from other line 28, column (g). However, if the PTP activities is not subject to the passive Both the partnership and you must box is checked, report the income activity limitations. Report the gain or meet the qualified nonrecourse rules on following the rules for Publicly traded (loss) on Schedule D (Form 1040), line this debt before you can include the partnerships on page 5. 12, column (f). amount shown next to Qualified If a loss is reported in box 1, follow the nonrecourse financing in your at-risk Box 5. Net Passive AMT Instructions for Form 8582 to figure how computation. Adjustment much of the loss can be reported on See Limitations on Losses, Schedule E (Form 1040), line 28, column Limited partners only. Use this amount Deductions, and Credits beginning on (f). However, if the PTP box is checked, (as well as your adjustments and tax page 2 for more information on the at-risk report the loss following the rules for preference items from other sources) to limitations. Publicly traded partnerships. prepare your Form 6251, Alternative -6-

7 Minimum Tax Individuals; Form 4626, Report Code A1 income or (loss) from activities. Generally, the income or Alternative Minimum Tax Corporations; partnership trade or business activities in (loss) reported in box 9, Code B1, is a or Schedule I (Form 1041), Alternative which you did not materially participate as passive activity amount for all general Minimum Tax Estates and Trusts. The follows. partners. However, the income or (loss) in adjustment is treated as being from a 1. Report any income on Schedule E box 9 is not from a passive activity if you trade or business that is a single passive (Form 1040), line 28, column (g). were a real estate professional and you activity. However, if the PTP box on Schedule K-1 materially participated in the activity. Individuals should enter the amount on is checked, report the income following Use the following instructions to line 19 of Form 6251, where it is taken the rules for Publicly traded partnerships. determine where to enter the Code B1 into account with adjustments and 2. Report a loss following the amount. preferences from other passive activities. Instructions for Form 8582 to figure how 1. If you have a loss from a passive much of the loss can be reported on activity in box 9, Code B1, and you meet Box 6. Net Other AMT Schedule E (Form 1040), line 28, column all of the following conditions, enter the Adjustment (f). However, if the PTP box is checked, loss on Schedule E (Form 1040), line 28, Individual general and limited partners report the loss following the rules for column (f). should enter this amount on line 16 of Publicly traded partnerships. a. You actively participated in the Form Code A2. General partner s net capital partnership rental real estate activities. gain or (loss) from trade or business See Special allowance for rental real Box 7. General Credits activities. If you did not materially estate activities on page 4. Limited partners only. Enter this amount participate in the trade or business b. Rental real estate activities with from box 7 on line 1z of Form 3800, activity, the net capital gain or (loss) is a active participation were your only General Business Credit. Because passive activity amount. If the amount is passive activities. general credits are treated as being from either (a) a loss that is not from a passive c. You have no prior year unallowed a trade or business that is a single activity or (b) a gain, report it on Schedule losses from these activities. passive activity, you must also include the D (Form 1040), line 12, column (f). d. Your total loss from the rental real box 7 amount on line 3 of Form estate activities was not more than If the amount is a loss from a passive $25,000 (not more than $12,500 if Box 8. Low-Income Housing activity, report it following the Instructions married filing separately and you lived Credit for Form 8582 to figure how much of the apart from your spouse all year). Limited partners only. Enter the amount loss can be reported on Schedule D e. If you are a married person filing reported in box 8 of Schedule K-1 on line (Form 1040), line 12, column (f). separately, you lived apart from your 4 of Form 8586, Low-Income Housing However, if the PTP box is checked, spouse all year. Credit. If an amount is reported in box 8, report the loss following the rules for f. You have no current or prior year all of the low-income housing credit is for Publicly traded partnerships. unallowed credits from a passive activity. buildings placed in service before January Code A3. General partner s 28% rate g. Your modified adjusted gross 1, If any of the low-income housing gain (loss) from trade or business income was not more than $100,000 (not credit is for buildings placed in service activities. If you did not materially more than $50,000 if married filing after December 31, 2007, the partnership participate in the trade or business separately and you lived apart from your will enter STMT in box 8 and attach a activity, the 28% rate gain or (loss) is a spouse all year). statement which lists separately the passive activity amount. If the amount is 2. If you have a (loss) from a passive amount of the credit for buildings placed either (a) a loss that is not from a passive activity in box 9 and you do not meet all in service prior to January 1, 2008 activity or (b) a gain, include it on line 4 of the conditions in 1 above, report the loss (reported on line 4 of Form 8586), and the the 28% Rate Gain Worksheet on page following the Instructions for Form 8582 to amount for buildings placed in service D-8 of the Instructions for Schedule D figure how much of the loss you can after December 31, 2007 (reported on line (Form 1040). report on Schedule E (Form 1040), line 11 of Form 8586). See the instructions for If the amount is a loss from a passive 28, column (f). However, if the PTP box is Form 8586 for more information. activity, report it following the Instructions checked, report the loss following the for Form 8582 to figure how much of the rules for Publicly traded partnerships. Box 9. Other loss can be included on line 4 of the 28% 3. If you were a real estate Rate Gain Worksheet on page D-8 of the professional and you materially Codes A Through C Instructions for Schedule D (Form 1040). participated in the activity, report box 9 General partners in an ELP must However, if the PTP box is checked, income or (loss) on Schedule E (Form separately account for any items report the loss following the rules for 1040), line 28, column (h) or (j). attributable to passive loss limitation Publicly traded partnerships. 4. If you have income from a passive activities to the extent necessary to activity in box 9, Code B1, enter the comply with the section 469 passive loss Code A4. General partner s general income on Schedule E (Form 1040), line rules. Therefore, the partnership is credits from trade or business 28, column (g). However, if the PTP box required to report income or (loss), capital activities. Report the general credits on is checked, report the income following gain or (loss), 28% rate gain or (loss), line 1z of Form If you did not the rules for Publicly traded partnerships. credits, and the alternative minimum tax materially participate in the trade or adjustment separately for all trade or business activity, you must also include Code B2. General partner s net capital business activities, rental real estate the general credits on line 3 of Form gain or (loss) from rental real estate activities, and rental activities other than activities (for the entire year). The net rental real estate. Code A5. General partner s alternative capital gain or (loss) from a rental real Code A1. General partner s taxable minimum tax adjustment from trade or estate activity is a passive activity amount income (loss) from trade or business business activities. Generally, an AMT unless you were a real estate activities. Report Code A1 income adjustment must be reported on line 16 of professional and you materially (loss) from partnership trade or business Form However, if the AMT participated in the activity. If the amount is activities in which you materially adjustment is from a passive activity, it either (a) a loss that is not from a passive participated on Schedule E (Form 1040), must be taken into account on line 19 with activity or (b) a gain, report it on Schedule line 28, column (h) or (j). See the adjustments and preferences from other D (Form 1040), line 12, column (f). instructions to determine whether you passive activities. If the amount is a loss from a passive materially participated in a trade or Code B1. General partner s taxable activity, report it following the Instructions business activity. income (loss) from rental real estate for Form 8582 to figure how much of the -7-