Key Takeaways:
- Schedule K-1 reports each partner’s share of partnership income, deductions, and credits
- Partners receive K-1 by the Form 1065 due date (March 17, 2026 for calendar-year partnerships)
- K-1 information is reported on your personal Form 1040. Do not attach K-1 to your return unless required.
- Box 1 shows ordinary business income; Boxes 14a-c show self-employment items
- NEW 2026: Box L capital accounts must use tax basis method
- Keep your K-1 for records. Partners, not partnerships, pay the tax.
That envelope arrives in late February or early March. Inside: Schedule K-1, a dense two-page document showing your share of partnership income. Most partners glance at it, forward it to their tax preparer, and hope everything works out.
But Schedule K-1 determines how much tax you owe. Every box matters. And starting in 2026, new reporting requirements mean K-1s carry even more information about your tax obligations.
This guide explains what every section of Schedule K-1 (Form 1065) means, how to use the information on your personal return, and what changed for 2026.
Table of Contents
What Is Schedule K-1 (Form 1065)?
Schedule K-1 is the tax document a partnership provides to each partner showing their individual share of partnership items for the tax year.
The partnership files Form 1065 with the IRS. Attached to that return is a Schedule K-1 for every partner. The partnership also gives each partner a copy.
Here’s the key concept: Partnerships don’t pay federal income tax at the entity level. Instead, income, deductions, gains, losses, and credits “pass through” to partners. Each partner reports their share on their personal tax return and pays tax on their portion.
Schedule K-1 is the document that allocates everything. Without it, partners couldn’t accurately report partnership income.
The partnership issues K-1s based on the partnership agreement’s profit and loss allocation. Equal partners in a 50/50 partnership each receive K-1s showing half of every item. Complex partnerships with special allocations produce K-1s that look very different from each other.
Schedule K vs. Schedule K-1: What’s the Difference?
These two schedules serve different purposes, and the distinction matters.
| Schedule K | Schedule K-1 |
|---|---|
| Partnership-level summary | Partner-level detail |
| Total of all partners’ shares | Individual partner’s share |
| Filed with Form 1065 | Given to each partner AND filed with IRS |
| One per partnership | One per partner |
Schedule K aggregates all income, deductions, and credits for the entire partnership. It’s the master document.
Schedule K-1 breaks Schedule K down by partner. The sum of all K-1s must equal the totals on Schedule K. If they don’t match, the IRS notices.
Think of Schedule K as the pie. Each Schedule K-1 is a slice.
When Should You Receive Your K-1?
Partnerships must provide Schedule K-1 to partners by the Form 1065 due date. For calendar-year partnerships, that’s March 17, 2026 for tax year 2025.
If the partnership files an extension, the K-1 deadline extends too. But you still need to estimate your tax liability. Waiting for a late K-1 doesn’t excuse underpayment penalties on your personal return.
Late K-1 penalties for partnerships: $330 per form for 2026. Intentional disregard bumps this to $660. Partnerships have financial incentive to deliver K-1s on time.
If you haven’t received your K-1 by mid-March, contact the partnership. You may need to file an extension on your personal return while waiting.
Part I: Information About the Partnership
The top section of Schedule K-1 identifies the partnership.
Box A: Partnership’s EIN The employer identification number assigned to the partnership by the IRS.
Box B: Partnership’s Name, Address, City, State, ZIP Basic identifying information matching the Form 1065.
Box C: IRS Center Where Partnership Filed Return Usually Ogden or Kansas City, depending on the partnership’s location.
Box D: Check if Publicly Traded Partnership PTPs have different rules for losses and credits. Most K-1s leave this unchecked.
Box E: Tax Shelter Registration Number Rarely applicable. Most legitimate partnerships don’t have one.
This section is informational. If any details look wrong, contact the partnership before filing your personal return.
Part II: Information About the Partner
This section identifies you and your position in the partnership.
Box F: Partner’s Identifying Number Your Social Security number or EIN if you’re receiving K-1 as a business entity.
Box G: General Partner or Limited Partner; Domestic or Foreign This classification affects self-employment tax. General partners typically pay SE tax on their distributive share. Limited partners generally don’t (with exceptions). More on this in our partnership self-employment tax guide.
Box H: Check If Retired or Deceased Partner Triggers special rules for final K-1s and estate planning.
Box I: Partner’s Share of Liabilities
This box shows three categories:
- Nonrecourse: Partnership debt where no partner is personally liable
- Qualified nonrecourse financing: Typically real estate debt secured by the property
- Recourse: Debt where partners bear personal liability
Your share of liabilities affects your partner basis calculation. Liabilities increase basis, which increases how much loss you can deduct and how much you can receive tax-free in distributions.
Box J: Partner’s Share of Profit, Loss, and Capital Shows your percentage at the beginning and end of the year. Changes indicate partner buyouts, new admissions, or amended allocations.
Box K: Partner’s Capital Account Analysis Summarizes changes to your capital account during the year. This ties to Schedule M-2 on Form 1065.
Box L: Partner’s Capital Account (Tax Basis Method) Important change: All K-1s must now report capital accounts using the tax basis method. This shows your capital account calculated under tax rules, not book accounting. The tax basis capital account doesn’t equal your outside basis because it excludes your share of liabilities.
Part III: Partner’s Share of Current Year Items
This is the meat of Schedule K-1. Every item here goes somewhere on your personal return.
Income Items (Boxes 1-11)
Box 1: Ordinary Business Income (Loss)
Your share of the partnership’s ordinary income from operations. This is the net result after all ordinary deductions at the partnership level.
Where it goes: Schedule E, Part II, then flows to Form 1040.
Self-employment impact: For general partners, Box 1 income typically counts toward self-employment tax. Report it on Schedule SE.
Box 2: Net Rental Real Estate Income (Loss)
Your share of rental income from real estate activities the partnership operates. This gets special treatment under passive activity rules.
Where it goes: Schedule E, Part II. May be limited by passive activity rules (Form 8582).
Box 3: Other Net Rental Income (Loss)
Rental income from property other than real estate. Equipment leasing partnerships often show amounts here.
Box 4a: Guaranteed Payments for Services
Payments you received from the partnership for services rendered, determined without regard to partnership income.
Tax treatment: Ordinary income, reported on Schedule E. Subject to self-employment tax for all partners, including limited partners.
Box 4b: Guaranteed Payments for Capital
Payments for the use of your capital contribution, regardless of partnership income.
Tax treatment: Same as 4a. These are ordinary income.
Box 4c: Total Guaranteed Payments
Sum of 4a and 4b. For detailed guidance on these payments, see our guaranteed payments guide.
Box 5: Interest Income
Your share of interest the partnership earned. Not interest you paid.
Where it goes: Schedule B of Form 1040.
Box 6a: Ordinary Dividends
Your share of dividend income the partnership received.
Where it goes: Schedule B.
Box 6b: Qualified Dividends
The portion of dividends qualifying for lower capital gains rates.
Where it goes: Schedule B and qualified dividends worksheet.
Box 7: Royalties
Your share of royalty income from intellectual property, mineral rights, or similar sources.
Where it goes: Schedule E.
Box 8: Net Short-Term Capital Gain (Loss)
Your share of capital gains or losses on assets held one year or less.
Where it goes: Schedule D.
Box 9a: Net Long-Term Capital Gain (Loss)
Your share of capital gains or losses on assets held more than one year.
Where it goes: Schedule D.
Box 9b: Collectibles (28%) Gain (Loss)
Gains from collectibles (art, coins, antiques) taxed at 28% maximum rate.
Box 9c: Unrecaptured Section 1250 Gain
Depreciation recapture on real estate. Taxed at 25% maximum rate.
Box 10: Net Section 1231 Gain (Loss)
Your share of gains and losses from Section 1231 property. These have special character rules.
Where it goes: Form 4797.
Box 11: Other Income (Loss)
Catch-all for income items not fitting other categories. Various codes identify specific types. Common codes include:
- Code A: Other portfolio income
- Code B: Involuntary conversions
- Code C: Section 1256 contracts
- Code F: Cancellation of debt income
Check the K-1 instructions for each code’s specific reporting location.
Deductions (Boxes 12-13)
Box 12: Section 179 Deduction
Your share of the partnership’s Section 179 expense election. This lets you immediately deduct qualified property instead of depreciating over time.
Limitation: You apply the Section 179 limit at your individual level. The partnership may allocate more than you can use.
Where it goes: Form 4562, then Schedule E.
Box 13: Other Deductions
Various deductions passed through to partners. Codes identify each type:
- Code A: Cash contributions (60% limit)
- Code B: Cash contributions (30% limit)
- Code C: Noncash contributions (50% limit)
- Code D: Noncash contributions (30% limit)
- Code E: Capital gain property (20% limit)
- Code H: Investment interest expense
- Code I: Section 59(e)(2) expenditures
- Code J: Deductions related to portfolio income
- Code K: Preproductive period expenses
- Code L: Commercial revitalization deduction
- Code M: Pension-related items
- Code N: Reforestation expense
- Code O: Domestic production activities info
- Code W: Other deductions
Each code has specific reporting requirements. The K-1 instructions explain where each goes.
Self-Employment (Box 14)
Box 14a: Net Earnings (Loss) from Self-Employment
This is your self-employment income for SE tax purposes. General partners see amounts here. Limited partners typically see zero (their distributive share is excluded) unless they receive guaranteed payments.
Box 14b: Gross Farming or Fishing Income
Used for estimated tax calculations if you’re primarily a farmer.
Box 14c: Gross Nonfarm Income
Used for estimated tax calculations.
Where it goes: Schedule SE.
Credits (Box 15)
Your share of various tax credits the partnership generated. Codes identify credit types:
- Code A: Low-income housing credit (Section 42(j)(5))
- Code B: Low-income housing credit (other)
- Code C: Qualified rehabilitation expenditures
- Code D: Other rental real estate credits
- Code E: Other rental credits
- Code F: Other credits
Credits directly reduce your tax liability. These are valuable. Report on Form 3800 or specific credit forms depending on type.
Foreign Transactions (Box 16)
If the partnership has international activities, this box shows foreign income and taxes.
Common items:
- Foreign taxes paid or accrued
- Foreign source income by category
- Gross income from all sources
You may need to file Forms 1116, 1118, or related international forms. Partnerships with significant international activity also provide Schedules K-2 and K-3 with detailed breakdowns.
Alternative Minimum Tax Items (Box 17)
Items requiring adjustment for AMT calculations:
- Code A: Post-1986 depreciation adjustment
- Code B: Adjusted gain or loss
- Code C: Depletion (other than oil & gas)
- Code D: Oil, gas, & geothermal properties
- Code E: Other AMT items
Report on Form 6251.
Tax-Exempt Income and Nondeductible Expenses (Box 18)
Code A: Tax-Exempt Interest Income Interest from municipal bonds and similar sources. Not taxable, but reported on your return.
Code B: Other Tax-Exempt Income Other income excluded from tax. Increases your basis but not your taxable income.
Code C: Nondeductible Expenses Partnership expenses that aren’t deductible. Reduces your basis without providing a tax benefit.
Distributions (Box 19)
Code A: Cash and Marketable Securities Cash distributions you received during the year. Generally not taxable unless they exceed your basis.
Code B: Distribution Subject to Section 737 Distributions triggering gain under certain contribution rules.
Code C: Other Property Fair market value of non-cash property distributed.
NEW for 2026: Updated coding categories for distribution types. The partnership may show more detail than in prior years.
Distributions reduce your basis. If distributions exceed basis, you recognize gain. See our partnership distributions guide for complete rules.
Other Information (Box 20)
This box contains crucial information for various calculations.
Code Z: Section 199A Information Your share of qualified business income for the QBI deduction. This includes:
- Ordinary business income
- W-2 wages
- UBIA of qualified property
- SSTB determination
Use this information on Form 8995 or 8995-A to calculate your QBI deduction.
Code AA-AJ: Additional Section 199A Information Detailed breakdowns for complex QBI calculations.
Code ZZ: Section 1062 Qualified Farmland (NEW 2026) For taxable years beginning after July 4, 2025, partners can elect special treatment for qualified farmland sales under the OBBBA.
How Partners Use K-1 Information
Step 1: Do NOT attach K-1 to your personal return
Keep your K-1 for records. The IRS already has a copy from the partnership. Attaching it unnecessarily clutters your return and creates potential for errors.
Step 2: Report each item on the correct form
The K-1 instructions provide a reporting map. Generally:
- Ordinary income → Schedule E, Part II
- Interest/dividends → Schedule B
- Capital gains → Schedule D
- Self-employment → Schedule SE
- Credits → Form 3800 or specific credit forms
- AMT items → Form 6251
Step 3: Apply limitation rules in this order
- Basis limitation (Section 704(d)): You can’t deduct losses exceeding your outside basis
- At-risk limitation (Section 465): You can’t deduct losses exceeding amounts at risk
- Passive activity limitation (Section 469): Passive losses may be limited
Each layer further restricts losses. See our partner basis calculation guide for detailed examples.
Step 4: Calculate QBI deduction
Use Box 20 information on Form 8995 or 8995-A. The QBI deduction can reduce taxable income by up to 20% of qualified business income.
Step 5: Report foreign items if applicable
Foreign taxes, income, and activities require additional forms. Complex international situations may need professional help.
Capital Account Reporting (Box L)
Starting recently, all Schedule K-1s must report capital accounts using the tax basis method.
Box L shows:
- Beginning capital account: Your capital at the start of the year
- Capital contributed during year: Additional contributions you made
- Current year increase (decrease): Your share of income/loss and other adjustments
- Withdrawals and distributions: What you took out
- Ending capital account: Your capital at year end
Tax Basis Capital vs. Outside Basis
Your Box L capital account does NOT equal your outside basis. The difference is your share of partnership liabilities (shown in Box I).
Outside Basis = Tax Basis Capital + Share of Liabilities
This distinction matters for loss limitations and distribution taxation.
Common K-1 Errors and How to Fix Them
Wrong Social Security number or EIN
Contact the partnership immediately. They must issue a corrected K-1. Incorrect taxpayer identification causes IRS matching problems.
Income amounts look wrong
Compare to your records of distributions and capital account activity. If numbers don’t match your expectations, ask the partnership for explanation before filing.
Missing K-1 entirely
If the partnership hasn’t provided your K-1 by late March:
- File a personal extension (Form 4868)
- Contact the partnership
- Estimate your income based on prior years if necessary
- File amended return when K-1 arrives
Late K-1 after you’ve filed
If you filed based on estimates and the actual K-1 differs, file Form 1040-X to amend your return.
K-1 says “corrected”
The partnership filed an amended Form 1065. Compare the corrected K-1 to your original. If you’ve already filed, you may need to amend.
2026 K-1 Updates (OBBBA Changes)
Several K-1 items changed for 2026:
Box 13, Code X: Expanded Section 181 Expenses The OBBBA expanded Section 181 to include qualified sound recording production expenses. Code X now captures these additional items.
Box 19: Updated Distribution Coding Instructions explain how partnerships separately code different distribution categories in Box 19.
Box 20, Code ZZ: Section 1062 Qualified Farmland Partners can make an election for gain from qualified farmland sales to qualified farmers. This new code captures the relevant information.
SSTB Disclosure Partnerships must now report whether they had gross receipts from a Specified Service Trade or Business. This information appears in the Section 199A data (Code Z) and affects QBI calculations for partners above income thresholds.
Frequently Asked Questions
What is Schedule K-1 from a partnership?
Schedule K-1 (Form 1065) reports a partner’s share of the partnership’s income, deductions, credits, and other items for the tax year. Partners use this information to complete their personal tax returns.
Do I file Schedule K-1 with my tax return?
No. Keep your K-1 for your records but do not attach it to your personal return unless specifically required. The IRS already has a copy from the partnership.
When should I receive my Schedule K-1?
Partnerships must provide K-1s to partners by the Form 1065 due date. For calendar-year partnerships, that’s March 17, 2026 for the 2025 tax year.
What does Box 1 on Schedule K-1 mean?
Box 1 shows your share of the partnership’s ordinary business income or loss from operations. Report this amount on Schedule E, Part II of your Form 1040.
Is K-1 income subject to self-employment tax?
For general partners, Box 14a shows net earnings subject to self-employment tax. Limited partners generally pay SE tax only on guaranteed payments (Box 4).
What if my K-1 is wrong?
Contact the partnership to request a corrected K-1. The partnership must file Form 1065X to make corrections. You may need to amend your personal return if you’ve already filed.
How does K-1 affect my tax basis?
Income items increase your basis. Losses and distributions decrease it. Your ending capital account in Box L, plus your share of liabilities in Box I, approximates your outside basis.
Making Sense of Your K-1
Schedule K-1 packs significant information into two pages. Every box affects your tax return somewhere.
For simple partnerships with straightforward allocations, the process is mechanical. Report each item where the instructions say. Apply the limitation rules. Calculate your QBI deduction.
For complex partnerships with special allocations, multiple activities, international components, or significant liabilities, the K-1 becomes more challenging. The interplay between basis limitations, at-risk rules, and passive activity restrictions requires careful tracking.
If your K-1 includes foreign items, Section 754 adjustments, or complicated Box 20 codes, professional preparation often prevents expensive errors.
SDO CPA prepares partnership returns and helps partners interpret their K-1s correctly. We understand partnership tax complexity because partnerships represent 80% of our practice. Schedule a consultation to discuss your partnership tax situation.