Schedule K-1 (Form 1065): every box and where it goes on the partner's return
Schedule K-1 (Form 1065) is the IRS form a partnership uses to report each partner's share of income, deductions, credits and other items. The partner doesn't file it, but reports each box on their own return after applying the basis, at-risk, passive activity and excess business loss limits.
“The partnership uses Schedule K-1 to report your share of the partnership’s income, deductions, credits, etc.” IRS, Partner’s Instructions for Schedule K-1 (Form 1065) (2025)
What is Schedule K-1 (Form 1065)?
Schedule K-1 (Form 1065) is the statement a partnership gives each partner showing that partner's share of the partnership's income, deductions, credits and other items for the year. According to the Partner's Instructions for Schedule K-1 (Form 1065) (2025), the partner keeps the K-1 and doesn't file it unless specifically required to, while the partnership files a copy with the IRS. The partner owes tax on their share whether or not it was distributed.
The form has three parts. Part I identifies the partnership, Part II covers the partner (item J percentages, item K1 liabilities, item L capital account), and Part III reports amounts in boxes 1 through 23. Boxes 11, 13, 14, 15, 17, 18, 19 and 20 use letter codes listed at the end of the instructions. An asterisk after a code means a statement is attached, and "STMT" means the detail is only on that statement.
Under the centralized audit regime, a partner reports each item the same way the partnership did or files Form 8082.
Where does each K-1 (1065) box go on the partner's return?
Each Schedule K-1 (Form 1065) box has a set destination on an individual partner's 2025 Form 1040, as listed in the 2025 partner's instructions. The table shows where the amount goes after basis, at-risk and passive limits have been applied. The coded boxes have their own pages with every code.
| K-1 (1065) box | What it is | Where it goes on a 2025 Form 1040 return |
|---|---|---|
| Box 1 | Ordinary business income (loss) | Schedule E, line 28, column (k) or (i) if nonpassive; (h) or (g) if passive, via Form 8582 |
| Box 2 | Net rental real estate income (loss) | Schedule E, line 28, column (h) or (g); passive unless a real estate professional materially participates |
| Box 3 | Other net rental income (loss) | Schedule E, line 28, column (h) or (g); passive for all partners |
| Boxes 4a and 4b | Guaranteed payments for services and for capital | Schedule E, line 28, column (k) |
| Box 4c | Total guaranteed payments | Total of 4a and 4b, not entered twice |
| Box 5 | Interest income | Form 1040, line 2b |
| Box 6a | Ordinary dividends | Form 1040, line 3b |
| Box 6b | Qualified dividends | Form 1040, line 3a |
| Box 6c | Dividend equivalents | Not reported on Form 1040 |
| Box 7 | Royalties | Schedule E, line 4 |
| Box 8 | Net short-term capital gain (loss) | Schedule D, line 5 |
| Box 9a | Net long-term capital gain (loss) | Schedule D, line 12 |
| Box 9b | Collectibles (28%) gain (loss) | 28% Rate Gain Worksheet, line 4 |
| Box 9c | Unrecaptured section 1250 gain | Unrecaptured Section 1250 Gain Worksheet, line 5 |
| Box 10 | Net section 1231 gain (loss) | Form 4797, line 2, column (g) |
| Box 11 | Other income (loss) | Depends on the code; see box 11 codes |
| Box 12 | Section 179 deduction | Form 4562, Part I, then Schedule E, line 28, column (j) |
| Box 13 | Other deductions | Depends on the code; see box 13 codes |
| Box 14 | Self-employment earnings (loss) | Schedule SE; see box 14 |
| Box 15 | Credits | Form 3800 or the credit's own form; Form 8582-CR if passive |
| Box 16 | Schedule K-3 attached | Schedule K-3 for international items |
| Box 17 | AMT items | Form 6251 |
| Box 18 | Tax-exempt income and nondeductible expenses | Code A on Form 1040, line 2a; all codes adjust basis |
| Box 19 | Distributions | Basis worksheet; see box 19 |
| Box 20 | Other information | Depends on the code; see box 20 codes |
| Box 21 | Foreign taxes paid or accrued | Reduces basis; use Schedule K-3, not box 21, for Form 1116 |
| Boxes 22 and 23 | More than one activity (at-risk, passive) | Attached statement for Form 6198 and Form 8582 |
Passive amounts in boxes 1 to 3 and passive losses in box 10 pass through Form 8582 before they reach Schedule E or Form 4797, and a partner in a publicly traded partnership (item D checked) follows the separate PTP rules instead. The instructions say to report each partnership's items on its own row of Schedule E, line 28. Box 21 foreign taxes reduce basis, but the instructions say not to use the box 21 amount to complete Form 1116, because Schedule K-3 carries the foreign tax credit detail. For a fiscal-year partnership, the partner reports the K-1 on the return for the year in which the partnership's year ends.
In what order do partner loss limits apply?
Partner loss limits apply in a fixed order, according to the Partner's Instructions for Schedule K-1 (Form 1065): basis first, then at-risk, then passive activity, then the excess business loss limit. Boxes 1 through 21 are reported before any of these limits, so the deduction on the partner's return can be smaller than the K-1 shows, and it's the partner's responsibility to apply them.
- Basis (IRC section 704(d)): losses are allowed only up to the partner's adjusted basis at the end of the partnership year, and the excess carries forward.
- At-risk (IRC section 465, Form 6198): losses are limited to the amount the partner could actually lose, so nonrecourse debt other than qualified nonrecourse financing generally doesn't count.
- Passive activity (IRC section 469, Form 8582): passive losses offset only passive income.
- Excess business loss (IRC section 461(l), Form 461).
The item L capital account is reported on the tax-basis method but leaves out the partner's share of liabilities, and the instructions say it can't be used to figure the partner's adjusted basis. Basis comes from the partner's own records, using the Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership in the instructions. Partner basis walks through that worksheet line by line.
What does a K-1 (1065) flow-through look like?
For example, Dana is a general partner who materially participates in the partnership's business. She starts 2025 with $50,000 of outside basis, and her share of partnership liabilities doesn't change during the year. Her Schedule K-1 (Form 1065) shows the amounts below, and the partnership's section 179 deduction is fully deductible on her Form 4562.
| K-1 (1065) item | Amount | Where it goes |
|---|---|---|
| Box 1 | $45,000 | Schedule E, line 28, column (k) |
| Box 4a | $30,000 | Schedule E, line 28, column (k) |
| Box 5 | $1,200 | Form 1040, line 2b |
| Box 9a | $3,000 | Schedule D, line 12 |
| Box 12 | $8,000 | Form 4562, Part I, then Schedule E, line 28, column (j) |
| Box 13, code A | $2,000 | Schedule A, line 11 |
| Box 14, code A | $75,000 | Schedule SE, line 2, after the $8,000 section 179 reduction: $67,000 |
| Box 19, code A | $20,000 | Basis worksheet, line 8a |
Schedule E, line 28 shows $75,000 of nonpassive income in column (k) and the $8,000 section 179 deduction in column (j). Box 14 is reduced by the section 179 deduction before it reaches Schedule SE, because the instructions require general partners to make that reduction. Her basis moves as follows.
| Step | Basis worksheet line | Basis after |
|---|---|---|
| Beginning basis | 1 | $50,000 |
| Add boxes 1, 5 and 9a | 4a, 4d, 4i | $99,200 |
| Subtract box 19 cash distribution | 8a | $79,200 |
| Subtract section 179 and charitable contributions | 15i, 15j | $69,200 |
| Ending basis | 18 | $69,200 |
Guaranteed payments don't increase outside basis, so the $30,000 in box 4a isn't on the worksheet. Dana's $69,200 of ending basis covers all of her 2025 deductions, so nothing is suspended under section 704(d).
What do reviewers check on Schedule K-1 (Form 1065)?
A reviewer checking a partner's Schedule K-1 (Form 1065) reporting confirms six items, each tied to the 2025 partner's instructions. The prior-year basis worksheet is the first document to pull, because beginning basis and any losses suspended under section 704(d) both come from it. The code Z statement is the second, because it drives the QBI deduction on Form 8995 or Form 8995-A. After that, the reviewer needs every attached statement, not just the face of the K-1: an asterisk after a code means the amount alone isn't enough to report the item. Item K1 at the beginning and end of the year shows whether a liability change moved basis, and item D shows whether the PTP rules replace the normal passive activity reporting.
Every line checked against the documents the client sent
Filed reads the partner's Schedule K-1, its attached statements and the prior-year basis worksheet, then checks every return line the K-1 feeds against them. Anything that doesn't tie comes back as a review item with a citation to the source.
Book a demoSchedule SE line 2 shows $75,000, matching K-1 box 14 code A, but box 12 shows an $8,000 section 179 deduction for this general partner. Confirm whether line 2 should be $67,000.
Common questions
Do I attach Schedule K-1 (Form 1065) to my tax return?
A partner generally doesn't attach Schedule K-1 (Form 1065) to their return. The 2025 partner's instructions say to keep it for your records unless you're specifically required to file it, as with backup withholding reported in box 15, code O. The partnership files its own copy with the IRS.
Why doesn't the capital account on my K-1 match my basis?
The item L capital account doesn't match outside basis because it leaves out the partner's share of partnership liabilities, which basis includes. The partnership may also be missing partner-level adjustments. The instructions say item L can't be used to figure adjusted basis, so the partner tracks basis on the worksheet.
What should a partner do if the K-1 has an error?
A partner who finds an error on Schedule K-1 should ask the partnership for a corrected K-1 instead of changing the amounts on their copy, according to the partner's instructions. Reporting an item differently from the partnership's return requires Form 8082 if the partnership is under the centralized audit regime, or a penalty may apply.