Specific Instructions (Schedules K and K-1, Part III, Except as Noted)

These instructions refer to the lines in Schedule K and the boxes on Schedule K-1.

Special Allocations An item is specially allocated if it’s allocated to a partner in a ratio different from the ratio for sharing income or loss generally.

Report specially allocated ordinary gain (loss) on Schedule K, line 11, and in box 11 of Schedule K-1. Report other specially allocated items in the applicable boxes of the partner’s Schedule K-1, with the total amount on the applicable line of Schedule K. See How Income Is Shared Among Partners, earlier.

Example. A partnership has a long-term capital gain that is specially allocated to a partner and a net long-term capital gain reported on Schedule D (Form 1065), line 15, that must be reported on Schedule K, line 9a. Because specially allocated gains or losses aren’t reported on Schedule D, the partnership must report both the net long-term capital gain from Schedule D and the specially allocated gain on Schedule K, line 9a. Box 9a of Schedule K-1 for the partner must include both the specially allocated gain and the partner’s distributive share of the net long-term capital gain from Schedule D.

Instructions for Form 1065 (2025) 35

Income (Loss)

Line 1. Ordinary Business Income (Loss)

Enter the amount from page 1, line 23. Enter the income (loss) without reference to (a) the bases of the partners’ interests in the partnership, (b) the partners’ at-risk limitations, or (c) the passive activity limitations. These limitations, if applicable, are determined at the partner level.

Line 1 shouldn’t include rental activity income (loss) or portfolio income (loss).

Schedule K-1. Enter each partner’s distributive share of ordinary business income (loss) in box 1 of Schedule K-1. Identify on statements attached to Schedule K-1 any additional information the partner needs to correctly apply the passive activity limitations. For example, if the partnership has more than one trade or business activity, identify on an attached statement to Schedule K-1 the amount from each separate activity. See Passive Activity Reporting Requirements , earlier.

Line 2. Net Rental Real Estate Income (Loss)

Enter the net income (loss) from rental real estate activities of the partnership from Form 8825. Attach this form to Form 1065.

Schedule K-1. Enter each partner’s distributive share of net rental real estate income (loss) in box 2 of Schedule K-1. Identify on statements attached to Schedule K-1 any additional information the partner needs to correctly apply the passive activity limitations. For example, if the partnership has more than one rental real estate activity, identify the amount attributable to each activity. Also, for example, identify certain items from any rental real estate activities that may be subject to the recharacterization rules. See Passive Activity Reporting Requirements , earlier.

Line 3. Other Net Rental Income (Loss)

Enter on line 3a gross income from rental activities other than those reported on Form 8825. Include on line 3a gain (loss) from Form 4797, line 17, that is attributable to the sale, exchange, or involuntary conversion of an asset used in a rental activity other than a rental real estate activity.

Enter on line 3b the deductible expenses of the activity. Attach a statement of these expenses to Form 1065.

Enter on line 3c the net income (loss).

See Rental Activities , earlier, and Pub. 925 for more information on rental activities.

Schedule K-1. Enter each partner’s distributive share of net income (loss) from rental activities other than rental real estate activities in box 3 of Schedule K-1. Identify on statements attached to Schedule K-1 any additional information the partner needs to correctly apply the passive activity limitations. For example, if the partnership has more than one rental activity reported in box 3, identify on an attached statement to Schedule K-1 the amount from each activity. See Passive Activity Reporting Requirements, earlier.

Line 4. Guaranteed Payments to Partners

Guaranteed payments are payments made by a partnership to a partner that are determined without regard to the partnership’s

income. Some examples of guaranteed payments to partners include:

• Payments for salaries, health insurance, and interest deducted by the partnership and reported on Form 1065, page 1, line 10; Form 8825; or Schedule K, line 3b;

• Compensation deferred under a section 409A nonqualified deferred compensation plan that doesn’t meet the requirements of section 409A reported on Schedule K, line 20c, code AI; and

• Payments the partnership must capitalize. See the instructions for Form 1065, line 10.

Generally, amounts reported on line 4a as guaranteed payments for services and line 4b as guaranteed payments for the use of capital aren’t considered to be related to a passive activity. For example, guaranteed payments for personal services paid to a partner would not be passive activity income. Likewise, guaranteed payments for capital are treated as interest for purposes of section 469 and are generally not passive activity income.

Tip: A partnership must treat and report a transfer of partnership property to a partner in satisfaction of a guaranteed payment as a sale or exchange, and not a distribution. See Rev. Rul. 2007-40, 2007-25 I.R.B. 1426, for more details.

Schedule K-1. Enter each partner’s guaranteed payments for services in box 4a and guaranteed payments for use of capital in box 4b of Schedule K-1. Report each partner’s total guaranteed payments in box 4c of Schedule K-1.

Portfolio Income

See Portfolio Income , earlier, for a definition of portfolio income.

Don’t reduce portfolio income by deductions allocated to it. Report such deductions (other than interest expense) on Schedule K, line 13e. Report each partner’s distributive share of deductions (other than interest) allocable to portfolio income in box 13 of Schedule K-1 using code I or L.

Interest expense allocable to portfolio income is generally investment interest expense reported on Schedule K, line 13c. Report each partner’s distributive share of interest expense allocable to portfolio income in box 13 of Schedule K-1 using code H.

Line 5. Interest Income

Enter only taxable portfolio interest on this line. Taxable interest is interest from all sources except interest exempt from tax and interest on tax-free covenant bonds. Include interest income from the credit to holders of tax credit bonds. See the instructions for codes AP through AU under Line 15f , later, and the Instructions for Form 8912, Credit to Holders of Tax Credit Bonds, for details.

Schedule K-1. Enter each partner’s distributive share of interest income in box 5 of Schedule K-1. If the partnership is reporting interest income from clean renewable energy bonds, attach a statement to Schedule K-1 that shows each partner’s distributive share of interest income from this credit. Partners need this information to properly adjust the bases of their interests in the partnership.

Line 6a. Ordinary Dividends

Enter only taxable ordinary dividends on line 6a, including any qualified dividends reported on line 6b. Don’t include any dividend equivalents reported on line 6c, or, to the extent

36 Instructions for Form 1065 (2025)

attributable to previously taxed earnings and profits (PTEP) in annual PTEP accounts of the partnership, any distributions received by the partnership from foreign corporations.

Note: The amount determined by the partnership based on its annual PTEP accounts in determining the amount on line 6a doesn’t include the amount by which distributions are attributable to PTEP in annual PTEP accounts of a direct or indirect partner.

Schedule K-1. Enter each partner’s distributive share of ordinary dividends in box 6a of Schedule K-1.

Line 6b. Qualified Dividends

Enter qualified dividends on line 6b. Except as provided below, qualified dividends are dividends received from domestic corporations and qualified foreign corporations. Don’t include any distributions received by the partnership from foreign corporations to the extent that they are attributable to PTEP in annual PTEP accounts of the partnership.

Note: The amount determined by the partnership based on its annual PTEP accounts in determining the amount on line 6b doesn’t include the amount by which distributions are attributable to PTEP in annual PTEP accounts of a direct or indirect partner.

Exceptions. The following dividends aren’t qualified dividends.

• Dividends the partnership received on any share of stock held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. When determining the number of days the partnership held the stock, don’t count certain days during which the partnership’s risk of loss was diminished. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock isn’t entitled to receive the next dividend payment. When counting the number of days the partnership held the stock, include the day the partnership disposed of the stock but not the day the partnership acquired it.

• Dividends attributable to periods totaling more than 366 days that the partnership received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When determining the number of days the partnership held the stock, don’t count certain days during which the partnership’s risk of loss was diminished. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule above.

• Dividends that relate to payments that the partnership is obligated to make because of short sales or positions in substantially similar or related property.

• Dividends paid by a RIC that aren’t treated as qualified dividend income under section 854.

• Dividends paid by a REIT that aren’t treated as qualified dividend income under section 857(c).

• Dividends from a corporation which first became a surrogate foreign corporation (as defined in section 7874(a)(2)(B) after December 22, 2017) other than a foreign corporation that is treated as a domestic corporation under section 7874(b). See section 1(h)(11)(C)(iii)(II).

See Pub. 550 for more details.

Qualified foreign corporation. A foreign corporation is a qualified foreign corporation if it’s:

1. Incorporated in a territory of the United States, or

2. Eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for this purpose and that includes an exchange

of information program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.

If the foreign corporation doesn’t meet either (1) or (2) above, then it may be treated as a qualified foreign corporation for any dividend paid by the corporation if the stock associated with the dividend paid is readily tradable on an established securities market in the United States.

However, qualified dividends don’t include dividends paid by an entity that was a PFIC (defined in section 1297) in either the tax year of the distribution or the preceding tax year.

See Notice 2004-71, 2004-45 I.R.B. 793, for more details.

Schedule K-1. Enter each partner’s distributive share of qualified dividends in box 6b of Schedule K-1.

Attach a statement to the Schedule K-1 identifying the dividends included in box 6a or 6b that are eligible for the deduction for dividends received under section 243(a), (b), or (c); section 245; or section 245A; or are hybrid dividends as defined in section 245A(e)(4).

Caution: If any amounts from line 6b are from foreign sources, see the Partnership Instructions for Schedules K-2 and K-3 for additional information.

Line 6c. Dividend Equivalents

Information on dividend equivalents, as described in section 871(m), is provided for persons that aren’t U.S. persons, who are generally required to treat dividend equivalents as U.S. source dividends, and domestic partnerships with partners who may need this information. Enter the amount of dividend equivalents as defined in section 871(m). See Regulations section 1.871-15 for additional information. For purposes of line 6c, include all amounts that would be included as a dividend equivalent if the amount were paid to a person subject to tax under section 871 or 881, even if the partner is a U.S. person.

Line 7. Royalties

Enter the royalties received by the partnership.

Schedule K-1. Enter each partner’s distributive share of royalties in box 7 of Schedule K-1.

Line 8. Net Short-Term Capital Gain (Loss)

Enter the gain (loss) that is portfolio income (loss) from Schedule D (Form 1065), line 7.

Schedule K-1. Enter each partner’s distributive share of net short-term capital gain (loss) in box 8 of Schedule K-1.

Line 9a. Net Long-Term Capital Gain (Loss)

Enter the gain or loss that is portfolio income (loss) from Schedule D (Form 1065), line 15.

Schedule K-1. Enter each partner’s distributive share of net long-term capital gain (loss) in box 9a of Schedule K-1.

Caution: If any gain or loss from Schedule D, line 7 or 15, is from the disposition of nondepreciable personal property used in a trade or business, it may not be treated as portfolio income. Instead, report it on Schedule K, line 11, and report each partner’s distributive share in box 11 of Schedule K-1 using code ZZ.

Caution: The information reported in boxes 9b and 9c relate to collectibles (28%) gain (loss) and unrecaptured section 1250

Instructions for Form 1065 (2025) 37

gain flowing through the partnership. If one or more partners sold an interest in the partnership, report separate amounts of collectibles (28%) gain and unrecaptured section 1250 gain related to the sale in box 20c, under codes AC and AD.

Line 9b. Collectibles (28%) Gain (Loss)

Figure the amount attributable to collectibles from the amount reported on Schedule D (Form 1065), line 15. A collectibles gain (loss) is any long-term gain or deductible long-term loss from the sale or exchange of a collectible that is a capital asset.

Collectibles include works of art, rugs, antiques, metal (such as gold, silver, or platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.

Also, include gain (but not loss) from the sale or exchange of an interest in a partnership or trust held for more than 1 year and attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement required under Regulations section 1.1(h)-1(e).

Schedule K-1. Report each partner’s distributive share of the collectibles (28%) gain (loss) in box 9b of Schedule K-1.

Line 9c. Unrecaptured Section 1250 Gain

The three types of unrecaptured section 1250 gain must be reported separately on an attached statement to Form 1065.

From the sale or exchange of the partnership’s business assets. Figure this amount in Form 4797, Part III, for each section 1250 property (except property for which gain is reported using the installment method on Form 6252) for which you had an entry in Form 4797, Part I. Subtract Form 4797, Part III, line 26g, from the smaller of Form 4797, line 22 or line 24. Figure the total of these amounts for all section 1250 properties. Generally, the result is the partnership’s unrecaptured section 1250 gain. However, if the partnership is reporting gain on the installment method for a section 1250 property held more than 1 year, see the next paragraph.

The total unrecaptured section 1250 gain for an installment sale of section 1250 property held more than 1 year is figured in a manner similar to that used in the preceding paragraph. However, the total unrecaptured section 1250 gain must be allocated to the installment payments received from the sale. To do so, the partnership must generally treat the gain allocable to each installment payment as unrecaptured section 1250 gain until all such gain has been used in full. Figure the unrecaptured section 1250 gain for installment payments received during the tax year as the smaller of (a) the amount from Form 6252, Part II, line 26, or Part III, line 37 (whichever applies); or (b) the total unrecaptured section 1250 gain for the sale reduced by all gain reported in prior years (excluding section 1250 ordinary income recapture).

Caution: If the partnership chose not to treat all of the gain from payments received after May 6, 1997, and before August 24, 1999, as unrecaptured section 1250 gain, use only the amount the partnership chose to treat as unrecaptured section 1250 gain for those payments to reduce the total unrecaptured section 1250 gain remaining to be reported for the sale. See Regulations section 1.453-12.

From the sale or exchange of an interest in a partnership. Also report as a separate amount any gain from the sale or exchange of an interest in a partnership attributable to unrecaptured section 1250 gain. See Regulations section 1.1(h)-1 and attach the statement required under Regulations section 1.1(h)-1(e).

From an estate, trust, REIT, or RIC. If the partnership received a Schedule K-1 or Form 1099-DIV from an estate, a trust, a REIT, or a RIC reporting unrecaptured section 1250 gain, don’t add it to the partnership’s own unrecaptured section 1250 gain. Instead, report it as a separate amount. For example, if the partnership received a Form 1099-DIV from a REIT with unrecaptured section 1250 gain, report it as “Unrecaptured section 1250 gain from a REIT.”

Schedule K-1. Report each partner’s distributive share of unrecaptured section 1250 gain from the sale or exchange of the business assets in box 9c of Schedule K-1. If the partnership is reporting unrecaptured section 1250 gain from an estate, a trust, a REIT, or a RIC, or from the partnership’s sale or exchange of an interest in another partnership (as explained above), enter “STMT” in box 9c and an asterisk (*) in the left column of the box, and attach a statement that separately identifies the amount of unrecaptured section 1250 gain from the following.

• The sale or exchange of the partnership’s business assets.

• The sale or exchange of an interest in another partnership.

• An estate, a trust, a REIT, or a RIC.

Caution: If any amounts from line 9c are from foreign sources, see the Partnership Instructions for Schedules K-2 and K-3 for additional information.

Line 10. Net Section 1231 Gain (Loss)

Enter the net section 1231 gain (loss) from Form 4797, Part I, line 7.

Don’t include net gain or loss from involuntary conversions due to casualty or theft. Report net gain or loss from involuntary conversions due to casualty or theft on Schedule K, line 11 (box 11, code B, of Schedule K-1). See the instructions for line 11 on how to report net gain (loss) due to a casualty or theft.

Schedule K-1. Report each partner’s distributive share of net section 1231 gain (loss) in box 10 of Schedule K-1. If the partnership has more than one rental, trade, or business activity, identify on an attached statement to Schedule K-1 the amount of section 1231 gain (loss) from each separate activity. See Passive Activity Reporting Requirements , earlier.

Caution: If any amounts from line 10 are from foreign sources, see the Partnership Instructions for Schedules K-2 and K-3 for additional information.

Line 11. Other Income (Loss)

Enter any other item of income or loss not included on lines 1 through 10. Determine other income (loss) without regard to any amount reported on line 6c. On the line to the left of the entry space for line 11, identify the type of income. If there’s more than one type of income, attach a statement to Form 1065 that separately identifies each type and amount of income for each of the following categories. The codes needed for Schedule K-1 reporting are provided in the heading for each category below.

Code A. Other portfolio income (loss). Portfolio income not reported on lines 5 through 10.

Report and identify other portfolio income or loss on an attached statement for line 11.

For example, income reported to the partnership from a REMIC, in which the partnership is a residual interest holder, would be reported on an attached statement for line 11. If the partnership holds a residual interest in a REMIC, report on the

38 Instructions for Form 1065 (2025)

attached statement for box 11 of Schedule K-1 the partner’s share of the following.

• Taxable income (net loss) from the REMIC (Schedules Q (Form 1066), line 1b).

• Excess inclusion (Schedules Q (Form 1066), line 2c).

• Section 212 expenses (Schedules Q (Form 1066), line 3b). Don’t report these section 212 expense deductions related to portfolio income on Schedules K and K-1.

Because Schedule Q (Form 1066) is a quarterly statement, the partnership must follow the Schedule Q instructions to figure the amounts to report to partners for the partnership’s tax year.

Code B. Involuntary conversions. Net gain (loss) from involuntary conversions due to casualty or theft. The amount for this line is shown on Form 4684, Casualties and Thefts, Section B, Part II, line 38a, 38b, or 39.

Each partner’s share must be entered on Schedule K-1. Give each partner a schedule that shows the amounts to be reported in the partner’s columns (b)(i), (b)(ii), and (c) of Form 4684, Section B, Part II, line 34.

If there was a gain (loss) from a casualty or theft to property not used in a trade or business or for income-producing purposes, notify the partner. The partnership shouldn’t complete Form 4684 for this type of casualty or theft. Instead, each partner will complete their own Form 4684.

Code C. Section 1256 contracts and straddles. Report any net gain or loss from section 1256 contracts from Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.

Code D. Mining exploration costs recapture. Provide the information partners need to recapture certain mining exploration expenditures. See Regulations section 1.617-3.

Code E. Cancellation of debt. If cancellation of debt is reported to the partnership on Form 1099-C, report each partner’s distributive share in box 11 using code E.

Tip: Include the amount of income the partnership must recognize for a transfer of a partnership interest in satisfaction of a partnership debt when the debt relieved exceeds the FMV of the partnership interest. See section 108(e)(8) for more information.

Code F. Section 743(b) positive income adjustments. For partnerships other than PTPs, report the partner’s share of net positive income resulting from all section 743(b) adjustments. For purposes of code F, “net positive income from all section 743(b) adjustments” means the excess of all section 743(b) adjustments allocated to the partner that increase the partner’s taxable income over all section 743(b) adjustments that decrease the partner’s taxable income. Attach a statement to line 20, code U, showing each section 743(b) basis adjustment making up the total and identify the assets to which it relates. The partnership may group these section 743(b) basis adjustments by asset category or description in cases where multiple assets are affected. See the instructions for line 20, code U.

Codes G and H. Reserved for future use.

Code I. Gain (loss) from disposition of oil, gas, geothermal, or other mineral properties (section 59(e)). Disposition of an interest in oil, gas, geothermal, or other mineral properties. Report the following information on an attached statement to Schedule K-1.

• Description of the property.

• The partner’s share of the amount realized on the sale, exchange, or involuntary conversion of each property (FMV of the property for any other disposition, such as a distribution).

• The partner’s share of the partnership’s adjusted basis in the property (except for oil or gas properties).

• Total intangible drilling costs, development costs, and mining exploration costs (section 59(e) expenditures) passed through to the partner for the property.

See Regulations section 1.1254-5 for more information.

Code J. Recoveries of tax benefit items. See section 111.

Code K. Gambling gains and losses. Gambling gains and losses subject to the limitations in section 165(d). Indicate on an attached statement whether or not the partnership is in the trade or business of gambling.

Code L. Any income, gain, or loss to the partnership from a distribution under section 751(b). When a partnership makes a distribution and the partnership holds section 751 property, if any partner has any gain or loss under section 751(b), the partnership must report the net of all such gains or losses.

Code M. Gain eligible for section 1045 rollover (replace- ment stock purchased by partnership). Include only gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D (Form 1065)) that was deferred by the partnership under section 1045 and reported on Form 8949 and/or Schedule D (Form 1065). See the Instructions for Schedule D (Form 1065) and the Instructions for Form 8949 for more details. The partnership makes the election for the section 1045 rollover on a timely filed (including extensions) return for the year in which the sale occurred. Corporate partners aren’t eligible for the section 1045 rollover. Additional limitations apply at the partner level. Each partner will determine if they qualify for the rollover. Report on an attached statement to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the partner’s share of the partnership’s adjusted basis and sales price of the QSB stock, (c) the dates the QSB stock was bought and sold, (d) the partner’s distributive share of gain from the sale of the QSB stock, and (e) the partner’s distributive share of the gain that was deferred by the partnership under section 1045. Only report these amounts on Schedule K-1; don’t include them on Schedule K, line 11.

Code N. Gain eligible for section 1045 rollover (replace- ment stock not purchased by the partnership). Include only gain from the sale or exchange of QSB stock (as defined in the Instructions for Schedule D (Form 1065)) the partnership held for more than 6 months but that wasn’t deferred by the partnership under section 1045. See the Instructions for Schedule D (Form 1065) for more details. A partner (other than a corporation) may be eligible to defer their distributive share of this gain under section 1045 if the partner purchases other QSB stock during the 60-day period that began on the date the QSB stock was sold by the partnership. Additional limitations apply at the partner level. Report on an attached statement to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the partner’s share of the partnership’s adjusted basis and sales price of the QSB stock, (c) the dates the QSB stock was bought and sold, and (d) the partner’s distributive share of gain from the sale of the QSB stock.

Code O. Gain from sale or exchange of QSB stock with sec- tion 1202 exclusion. The section 1202 exclusion applies only to QSB stock held by the partnership for more than 5 years. Corporate partners aren’t eligible for the section 1202 exclusion. Additional limitations apply at the partner level. Report each partner’s share of section 1202 gain on Schedule K-1. Each partner will determine if they qualify for the section 1202 exclusion. Report on an attached statement to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the partner’s share of the partnership’s

Instructions for Form 1065 (2025) 39

adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold.

Code P. Gain or loss on disposition of farm recapture prop- erty and other items to which section 1252 applies. Gains from the disposition of farm recapture property (see Form 4797) and other items to which section 1252 applies.

Code Q. Gain or loss on Fannie Mae or Freddie Mac quali- fied preferred stock. The partner’s distributive share of the partnership’s gain or loss attributable to the sale or exchange of qualified preferred stock of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). On an attached statement, show (a) the gain or loss attributable to the sale or exchange of the qualified preferred stock, (b) the date the stock was acquired by the partnership, and (c) the date the stock was sold or exchanged by the partnership. See Rev. Proc. 2008-64, 2008-47 I.R.B. 1195, for more information.

Code R. Specially allocated ordinary gain (loss).

Code S. Non-portfolio capital gain (loss). Any gain or loss from Schedule D (Form 1065), line 7 or 15, that isn’t portfolio income (for example, gain or loss from the disposition of nondepreciable personal property used in a trade or business).

Codes T through X. Reserved for future use.

Code ZZ. Other. Any other information the partners need to prepare their tax returns.

Schedule K-1. Enter each partner’s distributive share of the other income categories listed earlier in box 11 of Schedule K-1. Enter the applicable code provided.

If the partnership has more than one trade or business or rental activity, identify on an attached statement to Schedule K-1 the amount from each separate activity. See Passive Activity Reporting Requirements , earlier.

Deductions

Line 12. Section 179 Deduction

A partnership can elect to expense part or all of the cost of certain property the partnership purchased during the tax year for use in its trade or business (including certain rental activities, if the renting of the property is the partnership’s trade or business). See Pub. 946 for a definition of what kind of property qualifies for the section 179 expense deduction and the Instructions for Form 4562 for limitations on the amount of the section 179 expense deduction.

Complete Part I of Form 4562 to figure the partnership’s section 179 expense deduction. The partnership doesn’t take the deduction itself but instead passes it through to the partners. Attach Form 4562 to Form 1065 and show the total section 179 expense deduction on Schedule K, line 12.

The partnership must reduce the basis of the asset by the amount of the section 179 expense elected by the partnership, even if a portion of that amount can’t be passed through to its partners that year and must be carried forward because of limitations at the partnership level. Don’t reduce the partnership’s basis in section 179 property to reflect any portion of the section 179 expense that is allocable to a partner that is a trust or estate.

Identify on an attached statement to Schedules K and K-1 the cost of section 179 property placed in service during the year that is a qualified enterprise zone property. See the Partner’s Instructions for Schedule K-1 (Form 1065) for more details.

See, generally, the Instructions for Form 4562 for more details on the section 179 expense deduction.

See the instructions for Schedule K, line 20c, for sales or other dispositions of property for which a section 179 deduction has passed through to partners and for the recapture rules if the business use of the property dropped to 50% or less.

Schedule K-1. Report each partner’s distributive share of the section 179 expense deduction in box 12 of Schedule K-1. If the partnership has more than one trade or business activity, identify on an attached statement to Schedule K-1 the amount of section 179 deduction from each separate activity. See Passive Activity Reporting Requirements , earlier.

Don’t complete box 12 of Schedule K-1 for any partner that is an estate or a trust; estates and trusts aren’t eligible for the section 179 expense deduction.

Line 13a. Cash Contributions

No deduction is allowed for any contribution of $250 or more unless the partnership obtains a written acknowledgment from the charitable organization that shows the amount of cash contributed and gives an estimate of the value of any goods or services provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the partnership return or, if earlier, the date the partnership files its return. Don’t attach the acknowledgment to the partnership return, but keep it with the partnership’s records.

Cash contributions of any amount must be supported by a dated bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution, for example, a receipt.

Enter charitable cash contributions made during the tax year. Attach a statement to Form 1065 that separately identifies the partnership’s contributions for each applicable code below. See Limits on Deductions in Pub. 526, Charitable Contributions, for information on adjusted gross income (AGI) limitations on deductions for charitable contributions.

Code A. Cash contributions (60%). Enter cash contributions subject to the 60% AGI limitation. Don’t include in the amount reported using code A the cash contributions reported using code G.

Code B. Cash contributions (30%). Enter cash contributions subject to the 30% AGI limitation.

Schedule K-1. Report each partner’s distributive share of cash charitable contributions in box 13 of Schedule K-1 using code A or B, as applicable.

Line 13b. Noncash Contributions

No deduction is allowed for any contribution of $250 or more unless the partnership obtains a written acknowledgment from the charitable organization that describes the property contributed and gives an estimate of the value of any goods or services provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the partnership return or, if earlier, the date the partnership files its return. Don’t attach the acknowledgment to the partnership return but keep it with the partnership’s records. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions, described below. If the deduction claimed for noncash contributions exceeds $500, complete Form 8283 and attach it to Form 1065.

Attach a statement to Form 1065 that separately identifies the partnership’s contributions for each of applicable codes C through F. See Limits on Deductions in Pub. 526 for information

40 Instructions for Form 1065 (2025)

on AGI limitations on deductions for charitable contributions. See also Pub. 561, Determining the Value of Donated Property, for information on noncash contributions and contributions of capital gain property.

Contributions of qualified conservation property. If the partnership made a qualified conservation contribution under section 170(h), also include the FMV of the underlying property before and after the donation, as well as the type of legal interest contributed, and describe the conservation purpose furthered by the donation. Give a copy of this information to each partner.

If the partnership made a qualified conservation contribution under section 170(h), also include the FMV of the underlying property before and after the donation, as well as the type of legal interest contributed, and describe the conservation purpose furthered by the donation. Give a copy of this information to each partner.

If the partnership made a qualified conservation contribution for the preservation of a historic structure, there are additional requirements that may apply to obtain a charitable contribution deduction. This deduction may be reduced if rehabilitation credits were claimed for the historic structure. This deduction may be denied if the partnership doesn’t comply with section 170(f)(19). A $500 filing fee may apply to certain deductions over $10,000. See the Instructions for Form 8283 and Pub. 526 for details.

Subject to three exceptions, a charitable contribution by a partnership (whether made directly or reported as an allocated portion of a contribution of another partnership) isn’t treated as a qualified conservation contribution if the amount of such contribution exceeds 2.5 times the sum of each ultimate member’s relevant basis (disallowance rule). See the Instructions for Form 8283, Pub. 526, and Regulations sections 1.170A-14(j) through (n) for more details and information on the three exceptions.

An “ultimate member” means, with respect to any partnership, any partner (that is not itself a partnership or S corporation) or S corporation shareholder that receives a distributive share or pro rata share, directly or indirectly, of a qualified conservation contribution. Thus, a partnership’s ultimate members will be partners holding a direct interest in the partnership, partners holding an interest in an upper-tier partnership, or shareholders in an upper-tier S corporation. An upper-tier partnership or upper-tier S corporation is a partnership or S corporation that doesn’t itself make the contribution, but instead receives an allocated portion of a qualified conservation contribution from another partnership.

If the disallowance rule doesn’t apply to the contributing partnership because the amount of the contributing partnership’s qualified conservation contribution is equal to or less than 2.5 times the sum of each ultimate member’s relevant basis, then any upper-tier partnership must still determine whether the disallowance rule applies to its allocated portion of the qualified conservation contribution. Subject to the three exceptions, if an upper-tier partnership’s allocated portion exceeds 2.5 times the sum of each ultimate member’s relevant basis, the contribution isn’t treated as a qualified conservation contribution with respect to the upper-tier partnership, any subsequent upper-tier partnership or upper-tier S corporation, or any ultimate member. No one may claim a deduction for the allocated portion attributable to that upper-tier partnership.

If an upper-tier partnership’s allocated portion is equal to or less than 2.5 times the sum of each ultimate member’s relevant basis, then any subsequent upper-tier partnership or upper-tier S corporation must still determine whether the disallowance rule applies to its allocated portion.

In an attachment to each Schedule K-1 issued to a partner that is an ultimate member, report the partner’s relevant basis. If

the Schedule K-1 is being issued to a partner that’s an upper-tier partnership or upper-tier S corporation, the attachment should include a list of the relevant basis of each ultimate member of the upper-tier partnership or upper-tier S corporation. The partnership should coordinate with each partner in calculating relevant basis. See Qualified Conservation Contribution in Pub. 526 and Disallowance of deduction for certain qualified conservation contributions by partnerships and S corporations in the Instructions for Form 8283.

Code C. Noncash contributions (50%). Enter noncash contributions subject to the 50% AGI limitation.

Qualified conservation contributions. The AGI limit for qualified conservation contributions under section 170(h) is 50%. The carryover period is 15 years. See section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for details. Report qualified conservation contributions with a 50% AGI limitation in box 13 of Schedule K-1 using code C. Don’t include in the amount reported using code C the conservation contributions of property used in agriculture or livestock production reported on Schedule K-1 using code G. See Qualified Conservation Contribution in Pub. 526 and Disallowance of deduction for certain qualified conservation contributions by pass-through entities in the Instructions for Form 8283.

Charitable contributions of food inventory. Attach a statement to Schedule K-1 that shows the following.

• The partner’s distributive share of the amount of the charitable contributions made under section 170(e)(3) for qualified inventory that was donated to charitable organizations for the care of the ill, needy, and infants. The food must meet all the quality and labeling standards imposed by federal, state, and local laws and regulations. The amount of the charitable contribution for donated food inventory is the lesser of (a) the basis of the donated food plus one-half of the appreciation (gain if the donated food was sold at FMV on the date of the gift), or (b) twice the amount of basis of the donated food. A partnership that doesn’t account for inventories and isn’t required to capitalize indirect costs under section 263A may elect to treat the basis of the donated food as equal to 25% of the FMV of the food. See section 170(e)(3)(C) for more details.

• The partner’s distributive share of the net income for the tax year from the partnership’s trades or businesses that made the contribution of food inventory.

Caution: Don’t include the amount of food inventory contributions in the amount reported in box 13 of Schedule K-1 using code C. These contributions must be reported separately on an attached statement because partners must separately determine the limitations on the deduction.

Code D. Noncash contributions (30%). Enter noncash contributions subject to the 30% AGI limitation.

Code E. Capital gain property to a 50% limit organization (30%). Enter capital gain property contributions subject to the 30% AGI limitation.

Code F. Capital gain property (20%). Enter capital gain property contributions subject to the 20% AGI limitation.

Nondeductible contributions. Certain contributions made to an organization conducting lobbying activities aren’t deductible. See section 170(f)(9) for more details. Also, see Contributions You Can’t Deduct in Pub. 526 for more examples of nondeductible contributions.

Code G. Contributions (100%). Use code G to report the contributions below and, on an attached statement, provide the following information.

Qualified conservation contributions of property used in agriculture or livestock production. Enter qualified

Instructions for Form 1065 (2025) 41

conservation contributions of property used in agriculture or livestock production. The contribution must be subject to a restriction that the property remain available for such production. See section 170(b)(1)(E)(iv) for details.

If the partnership is a qualified farmer or rancher (as defined in section 170(b)(1)(E)(v)), show each partner’s distributive share of qualified conservation contributions of property used in agriculture or livestock production. Partners will have to separately determine whether they qualify for the 50% or 100% AGI limitation for these contributions. Don’t include the amounts reported on the attached statement using code G in the amount reported on Schedule K-1 for qualified conservation contributions using code C.

Schedule K-1. Report each partner’s distributive share of noncash charitable contributions in box 13 of Schedule K-1 using codes C through F for each of the contribution categories shown above. For code G items, report them by entering code G with an asterisk (G*) and entering “STMT” in the dollar amount entry space for box 13 and attach a statement that shows “Box 13, Code G” and the dollar amount of each type of deduction. The partnership must attach a copy of its Form 8283 to the Schedule K-1 of each partner receiving a distributive share of the contribution deduction shown in its Form 8283, Section A or Section B.

Code H. Line 13c. Investment Interest Expense

Include on this line the interest properly allocable to debt on property held for investment purposes. Property held for investment includes property that produces income from interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Property held for investment also includes property that produces gains not derived in the ordinary course of a trade or business from the disposition of property that produces those types of income or is held for investment.

Investment interest expense doesn’t include interest expense allocable to a passive activity.

Investment income and investment expenses other than interest are reported on lines 20a and 20b, respectively. This information is needed by partners to determine the investment interest expense limitation (see Form 4952 for details).

Schedule K-1. Report each partner’s distributive share of investment interest expense in box 13 of Schedule K-1 using code H.

Code J. Lines 13d(1) and 13d(2). Section 59(e)(2) Expenditures

Generally, section 59(e) allows each partner to make an election to deduct their distributive share of the partnership’s otherwise deductible qualified expenditures ratably over 10 years (3 years for circulation expenditures). The deduction is taken beginning with the tax year in which the expenditures were made (or for intangible drilling and development costs, over the 60-month period beginning with the month in which such costs were paid or incurred).

The term “qualified expenditures” includes only the following types of expenditures paid or incurred during the tax year.

• Circulation expenditures.

• R&E expenditures.

• Intangible drilling and development costs.

• Mining exploration and development costs.

If a partner makes the election, these items aren’t treated as alternative minimum tax (AMT) tax preference items. Because the partners are generally allowed to make this election, the partnership can’t deduct these amounts or include them as AMT items on Schedule K-1. Instead, the partnership passes through the information the partners need to figure their separate deductions. On line 13d(1), enter the type of expenditures claimed on line 13d(2). Enter on line 13d(2) the qualified expenditures paid or incurred during the tax year for which an election under section 59(e) may apply. Enter this amount for all partners whether or not any partner makes an election under section 59(e).

On an attached statement, identify the property for which the expenditures were paid or incurred. If the expenditures were for intangible drilling costs or development costs for oil and gas properties, identify the month(s) in which the expenditures were paid or incurred. If there’s more than one type of expenditure or more than one property, provide the amounts (and the months paid or incurred if required) for each type of expenditure separately for each property.

Schedule K-1. Report each partner’s distributive share of section 59(e) expenditures in box 13 of Schedule K-1 using code J. Identify the following on an attached statement: (a) the type of expenditure; (b) the property for which the expenditures are paid or incurred; and (c) for oil and gas properties only, the month in which intangible drilling costs and development costs were paid or incurred. If there’s more than one type of expenditure or the expenditures are for more than one property, provide each partner’s distributive share of the amounts (and the months paid or incurred for oil and gas properties) for each type of expenditure separately for each property.

Line 13e. Other Deductions

Enter deductions not included on lines 12, 13a, 13b, 13c, 13d(2), and 21. On the line to the left of the entry space for this line, identify the type of deduction. If there’s more than one type of deduction, attach a statement to Form 1065 that separately identifies the type and amount of each deduction for the following categories. The codes needed for Schedule K-1 reporting are provided for each category.

Code I. Deductions—royalty income. Enter deductions related to royalty income.

Schedule K-1. Report each partner’s distributive share of deductions related to royalty income.

Code K. Excess business interest expense (EBIE). If the partnership is required to file Form 8990, it may determine it has EBIE. If so, enter the amount from Form 8990, Part II, line 32, for EBIE.

Schedule K-1. Provide the information each partner needs to figure EBIE. In box 13, report the partner’s distributive share of EBIE. If the partnership reports EBIE, the partner is required to file Form 8990. The partner will enter the amount in column (c) of Form 8990, Schedule A, line 43. See the Instructions for Form 8990 for additional information.

Code L. Deductions—portfolio income (other). Enter any other deductions related to portfolio income.

No deduction is allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting. Because these expenses aren’t deductible by partners, the partnership doesn’t report these expenses on Schedule K, line 13e. The expenses are nondeductible and are reported as such on Schedule K, line 18c, and in box 18 of Schedule K-1 using code C.

Schedule K-1. In box 13, report the partner’s distributive share of deductions related to portfolio income that are reported

42 Instructions for Form 1065 (2025)

on Schedule K, line 13e, using code I (for deductions related to royalty income) or L (for other deductions related to portfolio income).

Code M. Amounts paid for medical insurance. Enter amounts paid during the tax year for insurance that constitutes medical care for the partner (including the partner’s spouse, dependents, and children under age 27 who aren’t dependents).

Code N. Educational assistance benefits. Enter amounts paid during the tax year for educational assistance benefits paid to a partner.

Code O. Dependent care benefits. Enter amounts paid during the tax year for dependent care benefits paid on behalf of each partner.

Code P. Preproductive period expenses. If the partnership is required to use an accrual method of accounting under section 447 or is prohibited from using the cash method under section 448(a)(3), it must capitalize these expenses. If the partnership is permitted to use the cash method, enter the amount of preproductive period expenses that qualify under section 263A(d). An election not to capitalize these expenses must be made at the partner level. See Uniform Capitalization Rules in Pub. 225.

Code Q. Reserved for future use.

Code R. Pensions and IRAs. Enter the payments for a partner to an IRA, a qualified plan, or a SEP or SIMPLE IRA plan. If a qualified plan is a defined benefit plan, a partner’s distributive share of payments is determined in the same manner as the partner’s distributive share of partnership taxable income. For a defined benefit plan, attach to the Schedule K-1 for each partner a statement showing the amount of benefit accrued for the tax year.

Code S. Reforestation expense deduction. The partnership can elect to deduct a limited amount of its reforestation expenditures paid or incurred during the tax year. The amount the partnership can elect to deduct is limited to $10,000 for each qualified timber property. See section 194(c) for definitions of “reforestation expenditures” and “qualified timber property.” The partnership must amortize over 84 months any amount not deducted. See the instructions for Form 1065, page 1, line 21, earlier. See Notice 2006-47, 2006-20 I.R.B. 892, for details on making the election.

Schedule K-1. Enter the partner’s distributive share of the allowable reforestation expenses in box 13 of Schedule K-1 using code S, and attach a statement that provides a description of the qualified timber property. If the partnership is electing to deduct amounts from more than one qualified timber property, provide a description and the amount for each property.

Codes T through U. Reserved for future use.

Code V. Section 743(b) negative income adjustments. For partnerships other than PTPs, report the partner’s share of net negative income resulting from all section 743(b) adjustments. For purposes of code V, “net negative income from all section 743(b) adjustments” means the excess of all section 743(b) adjustments allocated to the partner that decrease partner taxable income over all section 743(b) adjustments that increase partner taxable income. Attach a statement for line 20, code U, showing each section 743(b) basis adjustment making up the total and identify the assets to which it relates. The partnership may group these section 743(b) basis adjustments by asset category or description in cases where multiple assets are affected. See the instructions for line 20, code U.

Code W. Soil and water conservation. Enter amounts for soil and water conservation expenditures, and endangered species recovery expenditures. See section 175.

Code X. Qualified film, television, theatrical, and sound re- cording production expenses. The partnership can elect to deduct certain costs of a qualified film, television, live theatrical, or sound recording production commencing before tax year 2026 (after tax year 2015 and before tax year 2026 for a live theatrical production) limited to $15 million of the aggregate production cost of the production. An annual limit applies to the deduction for qualified sound recordings; see section 181(a)(2) (C). A higher dollar limitation applies for productions in certain areas. Provide a description of the film, television, live theatrical, or sound recording production on an attached statement. If the partnership makes the election for more than one film, television, live theatrical, or sound recording production, attach a statement to Schedule K-1 that shows each partner’s distributive share of the qualified expenditures separately for each production. The deduction is subject to recapture under section 1245 if the election is voluntarily revoked or the production fails to meet the requirements for the deduction. See section 181 and the related regulations for details.

Code Y. Expenditures for removal of barriers. Enter expenditures paid or incurred for the removal of architectural and transportation barriers to the elderly and disabled that the partnership has elected to treat as a current expense. See section 190.

Code Z. Itemized deductions. Enter amounts paid by the partnership that would be allowed as itemized deductions on any of the partners’ income tax returns if they were paid directly by a partner for the same purpose. Don’t enter expenses related to portfolio income or investment interest expense reported on Schedule K, line 13c, on this line.

Code AA. Contributions to a capital construction fund (CCF). Enter the amount of contributions made to a CCF. See Pub. 595.

Code AB. Penalty on early withdrawal of savings. Enter any penalty on early withdrawal of savings not reported on Schedule K, line 13c, because the partnership withdrew its time savings deposit before its maturity.

Code AC. Interest expense allocated to debt-financed dis- tributions. See 2022 Pub. 535, Business Expenses, available at IRS.gov/pub/irs-prior/p535--2022.pdf, for more information.

Code AD. Interest expense on working interest in oil or gas. Enter interest paid or accrued on debt properly allocable to each general partner’s share of a working interest in any oil or gas property (if the partner’s liability isn’t limited). General partners that didn’t materially participate in the oil or gas activity treat this interest as investment interest; for other general partners, it’s trade or business interest.

Code AE. Deductions—portfolio income. Enter the amount of deductions related to portfolio income which were formerly deductible by individuals under section 67 subject to the 2% AGI floor. For partners other than individuals, amounts that are clearly and directly allocable to portfolio income (other than investment interest expense and section 212 expenses from a REMIC) can be deducted on those partners’ income tax returns.

Codes AF through AJ. Reserved for future use.

Code ZZ. Other. Any other information the partners need to prepare their tax returns.

Schedule K-1. Enter each partner’s distributive share of the deduction categories listed earlier in box 13 of Schedule K-1 or provide the information required on an attached statement for the deduction.

If the partnership has more than one trade or business activity, identify on an attached statement to Schedule K-1 the

Instructions for Form 1065 (2025) 43

amount for each separate activity. See Passive Activity Reporting Requirements, earlier.

Self-Employment

Tip: If the partnership is an options dealer or a commodities dealer, see section 1402(i) before completing lines 14a, 14b, and 14c, to determine the amount of any adjustment that may have to be made to the amounts shown on the Worksheet for Figuring Net Earnings (Loss) From Self-Employment, later. If the partnership is engaged solely in the operation of a group investment program, earnings from the operation generally aren’t self-employment earnings for either general or limited partners.

General partners. General partners’ net earnings (loss) from self-employment don’t include the following.

• Dividends on any shares of stock and interest on any bonds, debentures, notes, etc., unless the dividends or interest is received in the course of a trade or business, such as a dealer in stocks or securities or interest on notes or accounts receivable.

• Rentals from real estate, except rentals of real estate held for sale to customers in the course of a trade or business as a real estate dealer or payments for rooms or space when significant services are provided.

• Royalty income, except royalty income received in the course of a trade or business.

See the Instructions for Schedule SE (Form 1040) for more information.

Limited partners. Generally, a limited partner’s share of partnership income (loss) isn’t included in net earnings (loss) from self-employment. Limited partners treat as self-employment earnings only guaranteed payments for services they actually rendered to, or on behalf of, the partnership to the extent that those payments are payment for those services.

However, whether a partner qualifies as a limited partner for purposes of self-employment tax depends on whether the partner is considered a limited partner under section 1402(a) (13).

Code A. Line 14a. Net Earnings (Loss) From Self-Employment

Use the Worksheet for Figuring Net Earnings (Loss) From Self-Employment in these instructions.

Schedule K. Enter on line 14a the amount from line 5 of the worksheet.

Schedule K-1. Don’t complete this line for any partner that is an estate, a trust, a corporation, an exempt organization, or an IRA.

Enter in box 14 of Schedule K-1 each individual general partner’s share of the combined amounts shown on the worksheet, lines 3c and 4c; and each individual limited partner’s share of the amount shown on the worksheet, line 4c, using code A.

Code B. Line 14b. Gross Farming or Fishing Income

Enter on line 14b the partnership’s gross farming or fishing income from self-employment. Individual partners need this amount to figure net earnings from self-employment under the farm optional method in Schedule SE (Form 1040), Part II. Enter each individual partner’s distributive share in box 14 of Schedule K-1 using code B.

Code C. Line 14c. Gross Nonfarm Income

Enter on line 14c the partnership’s gross nonfarm income from self-employment. Individual partners need this amount to figure net earnings from self-employment under the nonfarm optional method in Schedule SE (Form 1040), Part II. Enter each individual partner’s share in box 14 of Schedule K-1 using code C.

Worksheet Instructions

Line 1b. Include on line 1b any part of the net income (loss) from rental real estate activities from Schedule K, line 2, that is from:

• Rentals of real estate held for sale to customers in the course of a trade or business as a real estate dealer, or

• Rentals for which services were rendered to the occupants (other than services usually or customarily rendered for the rental of space for occupancy only). The supplying of maid service is such a service, but the furnishing of heat and light; the cleaning of public entrances, exits, stairways, and lobbies; and trash collection, etc., aren’t considered services rendered to the occupants.

Line 3c. The distributive shares of limited partners aren’t earnings from self-employment and aren’t reported on this line.

Lines 3b and 4b. Allocate the amounts on these lines in the same way Form 1065, page 1, line 23, is allocated to these particular partners.

Line 4a. Include in the amount on line 4a any guaranteed payments to partners reported on Schedule K, line 4c, and in box 4c of Schedule K-1, and derived from a trade or business as defined in section 1402(c). Also include other ordinary business income and expense items (other than expense items subject to separate limitations at the partner level, such as the section 179 expense deduction) reported on Schedules K and K-1 that are used to figure self-employment earnings under section 1402.

Line 4c. Guaranteed payments to general partners and limited partners for services provided to the partnership are net earnings from self-employment and are reported on this line.

Credits

Code A. Zero-Emission Nuclear Power Production Credit

The Inflation Reduction Act of 2022 created section 45U, the zero-emission nuclear power production credit, for electricity produced at a qualified nuclear power facility and sold by the taxpayer to an unrelated person in tax years beginning after tax year 2023 and before tax year 2033. For more information about the zero-emission nuclear power production credit, see Form 7213, Part II, and the Instructions for Form 7213.

Schedule K-1. Report in box 15 of Schedule K-1 each partner’s distributive share of the zero-emission nuclear power production credit reported on Schedule K, line 15f, using code A.

Code B. Credit for Production From Advanced Nuclear Power Facilities

Section 45J was enacted by section 1306 of the Energy Policy Act of 2005, P.L. 109-58, title XIII, section 1306. The credit is allowed only for qualifying electricity that the taxpayer produces and sells to an unrelated person. For more information about the credit for electricity produced from advanced nuclear power

44 Instructions for Form 1065 (2025)

Worksheet for Figuring Net Earnings (Loss) From Self-Employment

facilities, see Form 7213, Part I, and the Instructions for Form 7213.

Schedule K-1. Report in box 15 of Schedule K-1 each partner’s distributive share of the credit for electricity produced from advanced nuclear power facilities reported on Schedule K, line 15f, using code B.

Low-Income Housing Credit

Section 42 provides a credit that can be claimed by owners of low-income residential rental buildings. To qualify for this credit, the partnership must file Form 8609, Low-Income Housing Credit Allocation and Certification, separately with the IRS. Don’t attach Form 8609 to Form 1065. Complete and attach Form 8609-A, Annual Statement for Low-Income Housing Credit; and Form 8586, Low-Income Housing Credit, to Form 1065.

Code C. Line 15a. Low-Income Housing Credit (Section 42(j)(5))

Enter on line 15a the total low-income housing credit for property which a partnership is to be treated under section 42(j)(5) as the taxpayer to which the low-income housing credit was allowed.

If the partnership invested in another partnership to which the provisions of section 42(j)(5) apply, report on line 15a the credit reported to the partnership in box 15 of Schedule K-1 (Form 1065) using code C.

Schedule K-1. Report in box 15 of Schedule K-1 each partner’s distributive share of the low-income housing credit reported on line 15a of Schedule K. Use code C to report credits attributable to buildings placed in service after 2007. If the partnership has credits from more than one rental activity, identify on an attached statement to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements, earlier.

Code D. Line 15b. Low-Income Housing Credit (Other)

Enter on line 15b any low-income housing credit not reported on line 15a. This includes any credit reported to the partnership in box 15 of Schedule K-1 using code D.

Schedule K-1. Report in box 15 of Schedule K-1 each partner’s distributive share of the low-income housing credit reported on Schedule K, line 15b. Use code D to report credits attributable to buildings placed in service after 2007. If the partnership has credits from more than one rental activity, identify on an attached statement to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements, earlier.

Code E. Line 15c. Qualified Rehabilitation Expenditures (Rental Real Estate)

Enter on line 15c the total qualified rehabilitation expenditures related to rental real estate activities of the partnership. See the Instructions for Form 3468 for details on qualified rehabilitation expenditures.

Schedule K-1. Report each partner’s distributive share of qualified rehabilitation expenditures related to rental real estate activities in box 15 of Schedule K-1 using code E. Attach a statement to Schedule K-1 that provides the information and the partner’s distributive share of the amounts the partner will need to complete Form 3468, Part VII, lines 1d through 1k. See the Instructions for Form 3468 for details. If the partnership has expenditures from more than one rental real estate activity, identify on an attached statement to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements , earlier.

Caution: Qualified rehabilitation expenditures for property not related to rental real estate activities must be reported in box 20 using code D.

Code F. Line 15d. Other Rental Real Estate Credits

Enter on line 15d any other credit (other than credits reported on lines 15a through 15c) related to rental real estate activities. On

Instructions for Form 1065 (2025) 45

the dotted line to the left of the entry space for line 15d, identify the type of credit. If there’s more than one type of credit, attach a statement to Form 1065 that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 15f.

Schedule K-1. Report each partner’s distributive share of other rental real estate credits in box 15 of Schedule K-1 using code F. If you’re reporting each partner’s distributive share of only one type of rental real estate credit under code F, enter the code with an asterisk (F*) and the dollar amount in the entry space in box 15 and attach a statement that shows “Box 15, Code F” and the type of credit. If you’re reporting multiple types of rental real estate credits under code F, enter the code with an asterisk (F*) and enter “STMT” in the entry space in box 15 and attach a statement that shows “Box 15, Code F” and the types and dollar amounts of the credits. If the partnership has credits from more than one rental real estate activity, identify on the attached statement the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements , earlier.

Code G. Line 15e. Other Rental Credits

Enter on line 15e any other credit (other than credits reported on lines 15a through 15d) related to rental activities. On the dotted line to the left of the entry space for line 15e, identify the type of credit. If there’s more than one type of credit, attach a statement to Form 1065 that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 15f.

Schedule K-1. Report in box 15 of Schedule K-1 each partner’s distributive share of other rental credits using code G. If you’re reporting each partner’s distributive share of only one type of rental credit under code G, enter the code with an asterisk (G*) and the dollar amount in the entry space in box 15 and attach a statement that shows “Box 15, Code G” and the type of credit. If you’re reporting multiple types of rental credits under code G, enter the code with an asterisk (G*) and enter “STMT” in the entry space in box 15 and attach a statement that shows “Box 15, Code G” and the types and dollar amounts of the credits. If the partnership has credits from more than one rental activity, identify on the attached statement the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements , earlier.

Line 15f. Other Credits

Enter on line 15f any other credit, except credits or expenditures shown or listed on lines 15a through 15e. If any of these credits are attributable to rental activities, enter the amount on line 15d or 15e. On the dotted line to the left of the entry space for line 15f, identify the type of credit. If there’s more than one type of credit or if there are any credits subject to recapture, attach a statement to Form 1065 that separately identifies each type and amount of credit and credit recapture information for the following categories. The codes needed for box 15 of Schedule K-1 are provided in the headings of the following categories.

Code H. Undistributed capital gains credit. This credit represents taxes paid on undistributed capital gains by a RIC or a REIT. As a shareholder of a RIC or a REIT, the partnership will receive notice of the amount of tax paid on undistributed capital gains on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

Code I. Biofuel producer credit. Complete Form 6478, if applicable, to figure the credit. Attach it to Form 1065. Include any amount shown on Form 6478, line 2, in the partnership’s

income on line 7. See section 40(f) for an election the partnership can make to not have the credit apply.

Code J. Work opportunity credit. Complete Form 5884 to figure the credit. Attach it to Form 1065.

Code K. Disabled access credit. Complete Form 8826 to figure the credit. Attach it to Form 1065.

Code L. Empowerment zone employment credit. Complete Form 8844 to figure the credit. Attach it to Form 1065.

Code M. Credit for increasing research activities. Complete Form 6765 to figure the credit. Attach it to Form 1065.

Note: The partnership should provide the information necessary for the partner to determine whether the partnership is an eligible small business under section 38(c)(5)(A). If the partner and the partnership meet the requirements of section 38(c)(5)(A), the research credit may be treated as a specified credit.

Code N. Credit for employer social security and Medicare taxes paid on certain employee tips. Complete Form 8846 to figure the credit. Attach it to Form 1065.

Code O. Backup withholding. This credit is for backup withholding on dividends, interest, and other types of income of the partnership.

Code P. Unused investment credit from the qualifying ad- vanced coal project credit or qualifying gasification project credit allocated from cooperatives. See Form 3468.

Code Q. Unused investment credit from the qualifying ad- vanced energy project credit allocated from cooperatives. See Form 3468.

Code R. Unused investment credit from the advanced man- ufacturing investment credit allocated from cooperatives. See Form 3468.

Code S. Unused investment credit from the clean electrici- ty investment credit allocated from cooperatives. See Form 3468.

Code T. Unused investment credit from the energy credit allocated from cooperatives. See Form 3468.

Code U. Unused investment credit from the rehabilitation credit allocated from cooperatives. See Form 3468.

Code V. Advanced manufacturing production credit. See Form 7207.

Code W. Clean electricity production credit. See Form 7211.

Code X. Clean fuel production credit. See Form 7218.

Code Y. Clean hydrogen production credit. See Form 7210.

Code Z. Orphan drug credit. Complete Form 8820 to figure the credit, and attach it to Form 1065.

Code AA. Enhanced oil recovery credit. See Form 8830.

Code AB. Renewable electricity production credit. See Rev. Proc. 2007-65, as modified by Announcement 2009-69 and Announcement 2007-112, for a safe harbor method for allocating the credit for wind energy production. Complete Form 8835 to figure the credit. Attach a statement to Form 1065 and Schedule K-1 showing the allocation of the credit for production during the 4-year period beginning on the date the facility was placed in service and for production after that period. Attach Form 8835 to Form 1065.

Code AC. Biodiesel, renewable diesel, or sustainable avia- tion fuels credit. Complete Form 8864, if applicable, to figure the credit, and attach it to Form 1065. If this credit includes the small agri-biodiesel producer credit, identify on a statement attached to Schedule K-1 (a) each partner’s distributive share of

46 Instructions for Form 1065 (2025)

the small agri-biodiesel producer credit included in the total credit allocated to the partner, (b) the number of gallons for which the partnership claimed the small agri-biodiesel producer credit, and (c) the partnership’s productive capacity for agri-biodiesel.

Code AD. New markets credit. Complete Form 8874 to figure the credit. Attach it to Form 1065.

Code AE. Small employer pension plan startup costs credit and contributions credit. Complete Form 8881, Part I, to figure the credit, and attach it to Form 1065.

Code AF. Small employer auto-enrollment credit. Complete Form 8881, Part III, to figure the credit, and attach it to Form 1065.

Code AG. Small employer military spouse participation credit. Complete Form 8881, Part IV, to figure the credit, and attach it to Form 1065.

Code AH. Credit for employer-provided childcare facilities and services. Complete Form 8882 to figure the credit, and attach it to Form 1065.

Code AI. Low sulfur diesel fuel production credit. Complete Form 8896 to figure the credit, and attach it to Form 1065.

Code AJ. Qualified railroad track maintenance credit. Complete Form 8900 to figure the credit, and attach it to Form 1065.

Code AK. Credit for oil and gas production from marginal wells. See Form 8904.

Code AL. Distilled spirits credit. See Form 8906.

Code AM. Energy efficient home credit. See Form 8908.

Code AN. Reserved for future use.

Code AO. Alternative fuel vehicle refueling property credit. See Form 8911.

Code AP. Clean renewable energy bond credit. See Form 8912. The amount of this credit (excluding any credits from other partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5.

Code AQ. New clean renewable energy bond credit. See Form 8912. The amount of this credit (excluding any credits from other partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5. In addition, the amount of this credit must also be reported as a cash distribution on Schedule K, line 19a.

Code AR. Qualified energy conservation bond credit. See Form 8912. The amount of this credit (excluding any credits from other partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5. In addition, the amount of this credit must also be reported as a cash distribution on Schedule K, line 19a.

Code AS. Qualified zone academy bond credit. See Form 8912. The amount of this credit (excluding any credits from other partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5. In addition, the amount of this credit must also be reported as a cash distribution on Schedule K, line 19a.

Code AT. Qualified school construction bond credit. See Form 8912. The amount of this credit (excluding any credits from other partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5. In addition, the amount of this credit must also be reported as a cash distribution on Schedule K, line 19a.

Code AU. Build America bond credit. See Form 8912. The amount of this credit (excluding any credits from other

partnerships, estates, and trusts) must also be reported as interest income on Schedule K, line 5. In addition, the amount of this credit must also be reported as a cash distribution on Schedule K, line 19a.

Code AV. Credit for employer differential wage payments. See Form 8932.

Code AW. Carbon oxide sequestration credit. See Form 8933, Part III, line 8.

Code AX. Carbon oxide sequestration credit recapture. See Form 8933, Part III, line 10. Enter as a negative number.

Code AY. New clean vehicle credit. See Form 8936, Part II.

Code AZ. Credit for qualified commercial clean vehicles. See Form 8936, Part V.

Code BA. Credit for small employer health insurance pre- miums. See Form 8941.

Code BB. Employer credit for paid family and medical leave. See Form 8994.

Code BC. Eligible credits from transferor(s) under section 6418. Enter the total amount of eligible credits received from transferor(s) included in column (f) of the partnership’s Form 3800, Part III, line 6. Also, enter the total of the partnership’s distributive share of all eligible credits received from transferor(s) that were received from another pass-through entity. See required statement below.

Caution: Partnership and S corporation pass-through entities that transferred eligible credits from an unrelated person for cash under section 6418 must use Form 3800, Part III and Part V (if applicable) to report such credits. See the Instructions for Form 3800 for reporting and other requirements. Schedule K-1. Report each partner’s distributive share of all eligible credits transferred from one or more unrelated transferors pursuant to a transfer election under section 6418 in box 15 of Schedule K-1 using code BC. This amount must include the partner’s distributive share of all eligible credits from transferors that were received from another pass-through entity. Enter code BC with an asterisk (BC*) and enter “STMT” in the dollar amount entry space for box 15. Attach a statement that contains the following information.

• The partner’s distributive share amount of the eligible credits received from transferor(s) reported in column (f) of the partnership’s Form 3800, Part III or columns (d)(3) and (f)(2) of Part V (if applicable).

• The name of the credit form of the applicable line of Part III or Part V (if applicable).

• Source information for each transferred-in credit shown on the partnership’s Form 3800, Part III or Part V (if applicable), including:

1. The IRS-issued transfer registration number in column (b) of Part III or Part V, and

2. The transferor’s EIN in column (c) of Part III or column (c)(2) of Part V.

• If a partner’s distributive share includes an allocation of eligible credits purchased by a lower-tier pass-through entity and reported on Schedule K-1, you must provide the EIN of such transferee partnership or S corporation and the source information that was provided to you by such entity.

See the Instructions for Form 3800 for additional details.

Codes BD through BG. Reserved for future use.

Code ZZ. Other. Any other information the partners need to prepare their tax returns.

Section 6418 transfers of credits under section 48. If the partnership has made an election under section 6418 to transfer

Instructions for Form 1065 (2025) 47

a portion of a general business credit determined under section 48 to an unrelated transferee, use code ZZ to report to the partners their shares of the retained section 48 credit.

Section 6418 transfers of credits under section 48C. If the partnership has made an election under section 6418 to transfer a portion of a general business credit determined under section 48C to an unrelated transferee, use code ZZ to report to the partners their shares of the retained section 48C credit.

Section 6418 transfers of credits under section 48E. If the partnership has made an election under section 6418 to transfer a portion of a general business credit determined under section 48E to an unrelated transferee, use code ZZ to report to the partners their shares of the retained section 48E credit.

Caution: If a portion of a section 48, 48C, or 48E credit had been transferred under section 6418, don’t use box 20, code E, to report the basis information for the partners’ shares of the remaining credit(s).

Schedule K-1. Enter in box 15 of Schedule K-1 each partner’s distributive share of the credits listed above. See additional Schedule K-1 reporting information provided in the instructions above.

If the partnership has credits from more than one activity, identify on an attached statement to Schedule K-1 the amount of each type of credit for each separate activity. See Passive Activity Reporting Requirements, earlier.

International Transactions

Line 16a. International Transactions

If the partnership had items of international tax relevance, see the Partnership Instructions for Schedules K-2 and K-3 (Form 1065) to determine if you need to attach Schedules K-2 and K-3. If you satisfy the domestic filing exception to filing Schedule K-3, you must provide notification to the partner either through an attachment to the Schedule K-1, or separately prior to filing Form 1065.

Line 16b. Schedule K-2 Filing Exception

Check this box if an exception applies. See the Partnership Instructions for Schedules K-2 and K-3 (Form 1065) for additional details.

Alternative Minimum Tax (AMT) Items Lines 17a through 17f must be completed for all partners.

Enter items of income and deductions that are adjustments or tax preference items for the AMT. See Form 6251, Alternative Minimum Tax—Individuals; or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts, to determine the amounts to enter and for other information.

Don’t include as a tax preference item any qualified expenditures to which an election under section 59(e) may apply. Instead, report these expenditures on Schedule K, line 13d(2). Because these expenditures are subject to an election by each partner, the partnership can’t figure the amount of any tax preference related to them. Instead, the partnership must pass through to each partner in box 13, code J, of Schedule K-1 the information needed to figure the deduction.

Schedule K-1. Report each partner’s distributive share of amounts reported on lines 17a through 17f (concerning AMT) in box 17 of Schedule K-1 using codes A through F, respectively. If the partnership is reporting items of income or deduction for oil, gas, and geothermal properties, you may be required to identify these items on a statement attached to Schedule K-1 (see Oil, Gas, and Geothermal Properties Gross Income and Deductions,

later, for details). Also see the requirement for an attached statement in the instructions for line 17f.

Code A. Line 17a. Post-1986 Depreciation Adjustment

Figure the adjustment for line 17a based only on tangible property placed in service after 1986 (and tangible property placed in service after July 31, 1986, and before 1987 for which the partnership elected to use the General Depreciation System). Don’t make an adjustment for motion picture films, videotapes, sound recordings, certain public utility property (as defined in section 168(f)(2)), property depreciated under the unit-of-production method (or any other method not expressed in a term of years), qualified Indian reservation property, property eligible for a special depreciation allowance, qualified revitalization expenditures, or the section 179 expense deduction.

For property placed in service before 1999, refigure depreciation for the AMT as follows (using the same convention used for the regular tax).

• For section 1250 property (generally, residential rental and nonresidential real property), use the straight line method over 40 years.

• For tangible property (other than section 1250 property) depreciated using the straight line method for the regular tax, use the straight line method over the property’s class life. Use 12 years if the property has no class life.

• For any other tangible property, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, over the property’s AMT class life. Use 12 years if the property has no class life.

Tip: See Pub. 946 for a table of class lives.

For property (except section 1250 property) placed in service after 1998, refigure depreciation for the AMT only for property depreciated for the regular tax using the 200% declining balance method. For the AMT, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, and the same convention and recovery period used for the regular tax. For section 1250 property, refigure depreciation for the AMT using the straight line method, and the same convention and recovery period used for regular tax.

Figure the adjustment by subtracting the AMT deduction for depreciation from the regular tax deduction and enter the result on line 17a. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount. Depreciation capitalized to inventory must also be refigured using the AMT rules. Include on this line the current-year adjustment to income, if any, resulting from the difference.

Code B. Line 17b. Adjusted Gain or Loss

If the partnership disposed of any tangible property placed in service after 1986 (or after July 31, 1986, if an election was made to use the General Depreciation System), or if it disposed of a certified pollution control facility placed in service after 1986, refigure the gain or loss from the disposition using the adjusted basis for the AMT. The property’s adjusted basis for the AMT is its cost or other basis minus all depreciation or amortization deductions allowed or allowable for the AMT during the current tax year and previous tax years. Enter on this line the difference between the regular tax gain (loss) and the AMT gain (loss). If the AMT gain is less than the regular tax gain, or the AMT loss is more than the regular tax loss, or there’s an AMT loss and a regular tax gain, enter the difference as a negative amount.

48 Instructions for Form 1065 (2025)

If any part of the adjustment is allocable to net short-term capital gain (loss), net long-term capital gain (loss), or net section 1231 gain (loss), attach a statement that identifies the amount of the adjustment allocable to each type of gain or loss.

For a net long-term capital gain (loss), also identify the amount of the adjustment that is collectibles (28%) gain (loss).

For a net section 1231 gain (loss), also identify the amount of adjustment that is unrecaptured section 1250 gain.

Code C. Line 17c. Depletion (Other Than Oil and Gas)

Don’t include any depletion on oil and gas wells. The partners must figure their oil and gas depletion deductions and preference items separately under section 613A.

Refigure the depletion deduction under section 611 for mines, wells (other than oil and gas wells), and other natural deposits for the AMT. Percentage depletion is limited to 50% of the taxable income from the property as figured under section 613(a), using only income and deductions for the AMT. Also, the deduction is limited to the property’s adjusted basis at the end of the year as figured for the AMT. Figure this limit separately for each property. When refiguring the property’s adjusted basis, take into account any AMT adjustments made this year or in previous years that affect basis (other than the current year’s depletion).

Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.

Oil, Gas, and Geothermal Properties—Gross Income and Deductions

Generally, the amounts to be entered on lines 17d and 17e are only the income and deductions for oil, gas, and geothermal properties that are used to figure the partnership’s ordinary income (loss) (Form 1065, line 23).

If there are any items of income or deductions for oil, gas, and geothermal properties included in the amounts that are required to be passed through separately to the partners on Schedule K-1 (items not reported in box 1 of Schedule K-1), give each partner a statement that shows, for the box in which the income or deduction is included, the amount of income or deductions included in the total amount for that box. Don’t include any of these direct pass-through amounts on line 17d or 17e.

Figure the amounts for lines 17d and 17e separately for oil and gas properties that aren’t geothermal deposits and for all properties that are geothermal deposits.

Give each partner a statement that shows the separate amounts included in the computation of the amounts on lines 17d and 17e of Schedule K.

Code D. Line 17d. Oil, Gas, and Geothermal Properties—Gross Income

Enter the total amount of gross income (within the meaning of section 613(a)) from all oil, gas, and geothermal properties received or accrued during the tax year and included on page 1 of Form 1065.

Code E. Line 17e. Oil, Gas, and Geothermal Properties—Deductions

Enter any deductions allowed for the AMT that are allocable to oil, gas, and geothermal properties.

Code F. Line 17f. Other AMT Items

Attach a statement to Form 1065 and Schedule K-1 that shows other items not shown on lines 17a through 17e that are adjustments or tax preference items or that the partner needs to complete Form 6251 or Schedule I (Form 1041). See these forms and their instructions to determine the amount to enter.

Other AMT items include the following.

• Accelerated depreciation of real property under pre-1987 rules.

• Accelerated depreciation of leased personal property under pre-1987 rules.

• Long-term contracts entered into after February 28, 1986. Except for certain home construction contracts, the taxable income from these contracts must be figured using the percentage of completion method of accounting for the AMT.

• Losses from tax shelter farm activities. No loss from any tax shelter farm activity is allowed for the AMT.

• Any information needed by certain corporate partners to figure corporate AMT for tax years beginning after 2022, under section 55.

Schedule K-1. If you’re reporting each partner’s distributive share of only one type of AMT item under code F, enter the code with an asterisk (F*) and the dollar amount in the entry space in box 17 and attach a statement that shows the type of AMT item. If you’re reporting multiple types of AMT items under code F, enter the code with an asterisk (F*) and enter “STMT” in the entry space in box 17 and attach a statement that shows the dollar amount of each type of AMT item.

Other Information

Line 18a. Tax-Exempt Interest Income

Enter on line 18a tax-exempt interest income, including any exempt-interest dividends received from a mutual fund or other RIC.

Line 18b. Other Tax-Exempt Income

Enter on line 18b all income of the partnership exempt from tax other than tax-exempt interest.

Tax-exempt income from transfer election. Enter the total consideration received by the transferor partnership as a result of a transfer election under section 6418. If the partnership is allocated tax-exempt income from a pass-through entity (or lower-tier pass-through entity) making a transfer election to transfer its credits, include those amounts in code B as well.

Tax-exempt income from elective payment election. Enter the amount from Form 1065, page 1, line 29. This is the total amount of credits determined by the partnership for which an elective payment election is being made.

Schedule K-1.

Tax-exempt income from transfer election. Include the partner’s distributive share of tax-exempt income allocated by the transferor partnership related to proceeds received by the partnership as a result of the partnership making a transfer election to transfer its credits under section 6418. Also include

Instructions for Form 1065 (2025) 49

the partner’s distributive share of allocations made to the transferor partnership from a pass-through entity for which it was a partner related to the pass-through entity (or lower-tier pass-through entity) making a transfer election to transfer its credits.

Tax-exempt income from elective payment election. Include the partner’s distributive share of tax-exempt income as a result of the partnership making an elective payment election under section 6417. Also include the partner’s distributive share of allocations to the partnership from a pass-through entity (or lower-tier pass-through entity) that made an elective payment election.

Line 18c. Nondeductible Expenses

Enter on line 18c nondeductible expenses paid or incurred by the partnership.

Payments made by transferee partnerships to eligible taxpayers for the purchase of eligible credits as a result of a transfer election under section 6418 are treated as nondeductible expenses and are reported on this line. Don’t include separately stated deductions shown elsewhere on Schedules K and K-1, capital expenditures, or items the deduction for which is deferred to a later tax year.

Schedule K-1. Report in box 18 of Schedule K-1 each partner’s distributive share of amounts reported on lines 18a, 18b, and 18c of Schedule K (concerning items affecting partners’ bases) using codes A through C, respectively. Attach a statement to Schedule K-1 for the amounts included on line 18b that are exempt by reason of section 892, and describe the nature of the income.

Lines 19a and 19b. Distributions of Cash and Marketable Securities and Distributions of Other Property

Line 19a. Enter the distributions of cash (including deemed distributions of money under section 752(b)) and marketable securities made to the partners by combining amounts reported using codes A, D, and F. For marketable securities, report their FMVs on the date of distribution reduced (but not below zero) by the reduction amount in section 731(c)(3)(B).

The reduction amount equals (i) a distributee partner’s distributive share of the net gain, if any, which would be recognized had the partnership sold all the marketable securities held by the partnership for FMV immediately before the distribution, minus (ii) the distributee partner’s distributive share of the net gain, if any, which would be attributable to the marketable securities held by the partnership immediately after the distribution, using the same FMVs. See section 731(c)(3) and Regulations section 1.731-2 for additional exceptions to treating marketable securities as money.

If the amount on line 19a includes marketable securities treated as money, state separately on an attached statement to Schedules K and K-1 (a) the partnership's adjusted basis of those securities immediately before the distribution, and (b) the FMV of those securities on the date of distribution (reduced by the reduction amount).

Line 19b. Enter the distributions of property to partners not reported on line 19a by combining amounts reported using codes B, C, and G. In figuring the amount of the distribution to report using codes B, C, and G, use the adjusted basis of the property to the partnership immediately before the distribution, taking into account any adjustments under section 732(d), 734(b), or 743(b), as applicable. In addition, attach a statement

to Schedules K and K-1 showing the adjusted basis and FMV of each property distributed for each relevant code.

Schedule K-1. Report in box 19 each partner’s distributions and corresponding codes as explained below. Report separately distributions of cash and marketable securities to partners not providing services (code A), distributions of section 737 property (code B), distributions of property (other than cash, marketable securities, and section 737 property) (code C), deemed distributions of money under section 752(b) (code D), certain distributions of cash and marketable securities to partners providing services (code F), and certain distributions of property (other than cash, marketable securities, and section 737 property) to partners providing services (code G). For some distributions, the partnership must attach a statement. In those cases, enter an asterisk (*) and “STMT” after the applicable code and attach the required statement to Schedule K-1.

Code A. Distributions of cash and marketable securities to non-service partners. Use code A to report separately distributions of cash and marketable securities to partners not providing services to the partnership. Don’t include under code A amounts reported using codes D and F.

Code B. Distributions subject to section 737. If a partner contributed section 704(c) built-in gain property to the partnership within the last 7 years and the partnership during the tax year made a distribution of property to that partner other than the previously contributed built-in gain property, report using code B the adjusted basis of the distributed property to the partnership immediately before the distribution, taking into account any adjustments under section 732(d), 734(b), or 743(b), as applicable. Also, attach a statement to the distributee partner’s Schedule K-1 providing the following information.

• The FMV of the distributed property (other than money).

• The amount of money (if any) received in the distribution.

• The net precontribution gain of the partner. This is the net gain (if any) that would have been recognized by the distributee partner under section 704(c)(1)(B) if all the following property had been distributed by the partnership to another partner. This property includes all property contributed by the distributee partner during the 7 years prior to the distribution and that is still held by the partnership at the time of the distribution; see section 737.

If, as part of a single transaction, a partner incurs both an increase and a decrease in the partner’s share of the partnership liabilities (or the partner’s individual liabilities), then only the net decrease is treated as a distribution of money from the partnership and the net increase is treated as a contribution of money. See Regulations section 1.752-1(f).

Code E. Reserved for future use. Codes F and G. Distributions to partners performing services. Use code F to report any distributions of cash or marketable securities and code G to report any distributions of property (other than cash, marketable securities, and section

For more information, see Recognition of Precontribution Gain on Certain Partnership Distributions , earlier.

Code C. Other property. Include all distributions of property that aren’t (i) included on line 19a of Schedule K, (ii) section 737 property reported using code B, and (iii) property described under code G.

Code D. Deemed distributions of money—decreases in partner’s share of liabilities. Use code D to report any deemed distribution of money resulting from a decrease in the partner’s share of partnership liabilities and a decrease in the partner’s individual liabilities by reason of the partnership’s assumption of the individual liabilities of the partner as determined under section 752(b) for the current tax year. Liabilities for this purpose include both recourse and nonrecourse liabilities. See Regulations section 1.752-1 for additional information.

50 Instructions for Form 1065 (2025)

737 property) to a partner if (i) the partner performed services for the partnership; (ii) the partnership allocated income and distributed cash, marketable securities, or other property to the partner; and (iii) the partnership treated the transaction as a distribution to a partner.

Exception—payments reported as fees. Don’t use code F or G to report payments for services the partnership made to a partner acting in a non-partner capacity, that is, as a transaction occurring between the partnership and one who is not a partner. Instead, report the results of the transaction in accordance with section 707(a)(1). For example, a payment made for services under section 707(a)(2)(A) would be treated as occurring between a partnership and one who isn’t a partner. Section 707(a)(2)(A) applies to a partner who performs services for a partnership when there is a related direct or indirect allocation and distribution to the partner and the performance of such services and the allocation and distribution, when viewed together, are properly characterized as a transaction occurring between the partnership and one who isn’t a partner.

Exception—guaranteed payments. Don’t use code F or G to report guaranteed payments to partners for services as provided under section 707(c). Instead, report them on line 4a.

Lines 20a and 20b. Investment Income and Expenses

Code A. Investment income. Enter on line 20a the investment income included on Schedule K, lines 5, 6a, 7, and 11. Don’t include other portfolio gains or losses on this line.

Investment income includes gross income from property held for investment, the excess of net gain attributable to the disposition of property held for investment over net capital gain from the disposition of property held for investment, any net capital gain from the disposition of property held for investment that each partner elects to include in investment income under section 163(d)(4)(B)(iii), and any qualified dividend income that the partner elects to include in investment income. Generally, investment income and investment expenses don’t include any income or expenses from a passive activity. See Regulations section 1.469-2(f)(10) for exceptions.

Property subject to a net lease isn’t treated as investment property because it’s subject to the passive loss rules. Don’t reduce investment income by losses from passive activities.

Code B. Investment expenses. Enter investment expenses on line 20b. Investment expenses are deductible expenses (other than interest) directly connected with the production of investment income. See the Instructions for Form 4952 for more information.

Schedule K-1. Report each partner’s distributive share of amounts reported on lines 20a and 20b (investment income and expenses) in box 20 of Schedule K-1 using codes A and B, respectively.

If there are other items of investment income or expense included in the amounts that are required to be passed through separately to the partners on Schedule K-1, such as net short-term capital gain or loss, net long-term capital gain or loss, and other portfolio gains or losses, give each partner a statement identifying these amounts.

Line 20c. Other Items and Amounts

Report the following information on a statement attached to Form 1065. On Schedule K-1, enter the appropriate code in box 20 for each information item followed by an asterisk in the left-hand column of the entry space (for example, C*). In the right-hand

column, enter “STMT.” The codes are provided in the headings of the following information categories.

Code C. Fuel tax credit information. Report the number of gallons of each fuel sold or used during the tax year for a nontaxable use qualifying for the credit for taxes paid on fuel, type of use, and the applicable credit per gallon. See Form 4136, Credit for Federal Tax Paid on Fuels, and its instructions for details.

Code D. Qualified rehabilitation expenditures (other than rental real estate). Enter total qualified rehabilitation expenditures from activities other than rental real estate activities. See the Instructions for Form 3468 for details on qualified rehabilitation expenditures.

Note: Report qualified rehabilitation expenditures related to rental real estate activities on Schedule K, line 15c.

Schedule K-1. Report each partner’s distributive share of qualified rehabilitation expenditures related to activities other than rental real estate activities in box 20 of Schedule K-1 using code D. Attach a statement to Schedule K-1 that provides the information and the partner’s distributive share of the amounts the partner will need to complete Form 3468, Part VII, lines 1d through 1k. See the Instructions for Form 3468 for details. If the partnership has expenditures from more than one activity, identify on a statement attached to Schedule K-1 the amount for each separate activity. See Passive Activity Reporting Requirements , earlier.

Code E. Basis of energy property. See the Instructions for Form 3468 for details on basis of energy property. In box 20 of Schedule K-1, enter code E followed by an asterisk (E*) and enter “STMT” in the entry space for the dollar amount. Attach a statement to Schedule K-1 that provides the information and the partner’s distributive share of the amounts the partner will need to figure the amounts to report on Form 3468, Part VI, lines 1a, 3a, 3e, 5a, 5c, 5f, 5o, 7a, 7j, 9a, 9b, 11d, 11h, 13a, 15a, 17a, 17e, 19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 28a. See the Instructions for Form 3468 for details.

Caution: This code and the partners’ distributive shares should not include any investment credits for which a transfer election was made by the partnership under section 6418. See Code ZZ. Other under Line 15f, earlier.

Codes F and G. Recapture of low-income housing credit. If recapture of part or all of the low-income housing credit is required because (a) the prior-year qualified basis of a building decreased, or (b) the partnership disposed of a building or part of its interest in a building, see Form 8611, Recapture of Low-Income Housing Credit. Complete Form 8611, lines 1 through 7, to determine the amount of credit to recapture. Use code F on Schedule K-1 to report recapture of the low-income housing credit from a section 42(j)(5) partnership. Use code G to report recapture of any other low-income housing credit. See the instructions for lines 15a and 15b, earlier, for more information.

Tip: If a partner’s ownership interest in a building decreased because of a transaction at the partner level, the partnership must provide the necessary information to the partner to enable the partner to figure the recapture.

Caution: The disposal of a building or an interest therein will generate a credit recapture unless it’s reasonably expected that the building will continue to be operated as a qualified low-income building for the remainder of the building’s compliance period.

See Form 8586, Form 8611, and section 42 for more information.

Instructions for Form 1065 (2025) 51

Code H. Recapture of investment credit. Complete and attach Form 4255 when investment credit property is disposed of, or it no longer qualifies for the credit, before the end of the recapture period or the useful life applicable to the property. State the type of property at the top of Form 4255, and complete Part II, lines 2, 3, 4, 10, and 11, whether or not any partner is subject to recapture of the credit.

Attach to each Schedule K-1 a separate statement providing the information the partnership is required to show on Form 4255, but list only the partner’s distributive share of the cost of the property subject to recapture. Also indicate the lines of Form 4255 on which the partners should report these amounts.

Code I. Recapture of other credits. On an attached statement to Schedule K-1, provide any information partners will need to report recapture of credits (other than recapture of low-income housing and investment credits reported on Schedule K-1 using codes F, G, and H). Examples of credits reported using code I when subject to recapture include the following.

• The new markets credit. See Form 8874 and Form 8874-B, Notice of Recapture Event for New Markets Credit, for details.

• The credit for employer-provided childcare facilities and services. See section 45F(d).

• The alternative motor vehicle credit. See section 30B(h)(8).

• The alternative fuel vehicle refueling property credit. See section 30C(e)(5).

• The clean vehicle credit. See section 30D(f)(5).

Code J. Look-back interest—completed long-term con- tracts. If the partnership is closely held (defined in section 460(b)(4)(C)) and it entered into any long-term contracts after February 28, 1986, that are accounted for under either the percentage of completion-capitalized cost method or the percentage of completion method, it must attach a statement to Form 1065 showing the information required in items (a) and (b) of Form 8697, Part II, lines 1 and 3. It must also report the amounts for Part II, lines 1 and 3, to its partners. See the Instructions for Form 8697 for more information.

Code K. Look-back interest—income forecast method. If the partnership is closely held (defined in section 460(b)(4)(C)) and it depreciated certain property placed in service after September 13, 1995, under the income forecast method, it must attach to Form 1065 the information specified in the instructions for Form 8866, line 2, for the 3rd and 10th tax years beginning after the tax year the property was placed in service. It must also report the line 2 amounts to its partners. See the Instructions for Form 8866 for more details.

Code L. Dispositions of property with section 179 deduc- tions. This represents gain or loss on the sale, exchange, or other disposition of property for which a section 179 deduction has been passed through to partners. The partnership must provide all the following information related to such dispositions (see the instructions for page 1, line 6, earlier).

• Description of the property.

• Date the property was acquired and placed in service.

• Date of the sale or other disposition of the property.

• The partner’s share of the gross sales price or amount realized.

• The partner’s share of the cost or other basis plus expense of sale (reduced as explained in the instructions for Form 4797, line 21).

• The partner’s share of the depreciation allowed or allowable, determined as described in the instructions for Form 4797, line 22, but excluding the section 179 deduction.

• The partner’s share of the section 179 deduction (if any) passed through for the property and the partnership’s tax year(s) in which the amount was passed through.

• If the disposition is due to a casualty or theft, a statement indicating so, and any additional information needed by the partner.

• For an installment sale, any information the partner needs to complete Form 6252. The partnership must also separately report the partner’s share of all payments received for the property in future tax years. (Installment payments received for sales made in prior tax years should be reported in the same manner used in prior tax years.) See the instructions for Form 6252 for details.

Code M. Recapture of section 179 deduction. This amount represents recapture of the section 179 deduction if business use of the property dropped to 50% or less before the end of the recapture period. If the business use of any property (placed in service after 1986) for which a section 179 deduction was passed through to partners dropped to 50% or less (for a reason other than disposition), the partnership must provide all the following information.

• The partner’s distributive share of the original basis and depreciation allowed or allowable (not including the section 179 deduction).

• The partner’s distributive share of the section 179 deduction (if any) passed through for the property and the partnership’s tax year(s) in which the amount was passed through.

See Regulations section 1.179-1(e) for details.

Code N. Business interest expense (BIE). The partnership must determine the amount of deductible BIE included on other lines of the Schedule K. Attach a statement to Schedule K providing the allocation of the deductible BIE included on other lines of Schedule K. EBIE isn’t deductible BIE; therefore, don’t include it in this reported amount for tax years beginning after November 12, 2020.

Schedule K-1. For tax years beginning after November 12, 2020, enter the partner’s amount of deductible BIE for inclusion in the separate loss class for computing any basis limitation (defined in section 704(d) and Regulations section 1.163(j)-6(h)). Also attach a statement to Schedule K-1 providing the allocation of the BIE already deducted by the partnership on other lines of Schedule K-1 by line number. Don’t include EBIE reported in box 13, code K.

Code O. Section 453(l)(3) information. Supply any information needed by a partner to figure the interest due under section 453(l)(3). If the partnership elected to report the dispositions of certain timeshares and residential lots on the installment method, each partner’s tax liability must be increased by the partner’s distributive share of the interest on tax attributable to the installment payments received during the tax year.

Code P. Section 453A(c) information. Supply any information needed by a partner to figure the interest due under section 453A(c); see Pub. 537, Installment Sales, for additional information. This information must include the following from each Form 6252 where the partner’s share of the selling price, including mortgages and other debts, is greater than $150,000.

• Description of property.

• Date acquired.

• Date property sold.

• Selling price, including mortgages and other debts, not including interest, whether stated or unstated.

• Mortgages, debts, and other liabilities the buyer assumed or took the property subject to.

• Gross profit.

• Contract price.

• Gross profit percentage.

52 Instructions for Form 1065 (2025)

• Current-year payments and deemed payments received during the year, not including interest whether stated or unstated.

• Origination-year payments and deemed payments received during the year, not including interest whether stated or unstated.

• Prior-year payments, not including interest whether stated or unstated.

• Installment sale income.

• Character of the income—capital or ordinary.

See section 453A(c) for information on how to compute the interest charge on the deferred tax liability. The section 453A interest charge is reported on the “Other taxes” line of your tax return. See Interest on Deferred Tax in Pub. 537 for additional details on how to compute the section 453A(c) interest.

Code Q. Section 1260(b) information. Supply any information needed by a partner to figure the interest due under section 1260(b). If the partnership had gain from certain constructive ownership transactions, each partner’s tax liability must be increased by the partner’s distributive share of interest due on any deferral of gain recognition. See section 1260(b) for details, including how to figure the interest.

Code R. Interest allocable to production expenditures. Supply any information needed by a partner to properly capitalize interest as required by section 263A(f). See Section 263A uniform capitalization rules, earlier, for more information.

Code S. CCF nonqualified withdrawal. Report nonqualified withdrawals by the partnership from a CCF to partners. See Pub. 595.

Code T. Depletion information—oil and gas. Report gross income and other information relating to oil and gas well properties to partners to allow them to figure the depletion deduction for oil and gas well properties. Allocate to each partner a proportionate share of the adjusted basis of each partnership oil or gas property. See section 613A(c)(7)(D) for details.

The partnership can’t deduct depletion on oil and gas wells. Each partner must determine the allowable amount to report on their return. See the 2022 Pub. 535, available at IRS.gov/pub/irs- prior/p535--2022.pdf , for more information.

Code U. Section 743(b) basis adjustment. Report the total section 743(b) adjustment net of any cost recovery as a single amount for all asset categories for each partner. In addition, attach a statement to the Schedule K-1 for this code showing the amount of each remaining section 743(b) basis, net of cost recovery by asset category. A reasonable grouping by asset category may be used, but such grouping shouldn’t be less detailed than the asset categories listed on the Form 1065, Schedule L, balance sheet. Go to IRS.gov/Forms-Pubs/ Clarifications-for-disregarded-entity-reporting-and-section-743b- reporting for more information.

Code V. Unrelated business taxable income (UBTI). Report any information a partner that is a tax-exempt organization may need to figure its share of UBTI under section 512(a)(1) (but excluding any modifications required by paragraphs (8) through (15) of section 512(b)). Partners are required to notify the partnership of their tax-exempt status. See Form 990-T, Exempt Organization Business Income Tax Return; and Pub. 598, Tax on Unrelated Business Income of Exempt Organizations, for more information.

If the partner is an IRA, include the IRA partner’s unique EIN on line 20, code AR.

Note: For tax year 2025, PTPs aren’t required to include the IRA partner’s unique EIN on line 20, code AR.

Code W. Precontribution gain (loss). If the partnership distributed any section 704(c) property to any partner other than the contributing partner, and the date of the distribution was within 7 years of the date the section 704(c) property was contributed to the partnership, the distribution must be treated as if it were a sale by the contributing partner taking place on the date of the distribution. Section 704(c) property is property that had an FMV that was either greater or less than the contributing partner’s adjusted basis at the time the property was contributed to the partnership. See Dispositions of Contributed Property , earlier, for more information. If the partnership made such a distribution during its tax year, attach a statement to the contributing partner’s Schedule K-1 that provides the following information.

• The amount of the gain or loss that would have been allocated to the contributing partner if the partnership had sold the section 704(c) property at its FMV at the time of the distribution. See section 704(c)(1)(B) for details.

• The character of the gain or loss that would have resulted if the partnership had sold the section 704(c) property to the distributee partner.

Enter code W in box 20 of Schedule K-1 with an asterisk (W*) and enter “STMT,” and attach the required statement.

Code X. Payment obligations including guarantees and deficit restoration obligations (DROs). If the box in item K3 is checked, in box 20 of Schedule K-1, enter code X followed by an asterisk (X*) and enter “STMT” in the entry for dollar amount. On the attached statement, provide the aggregate ending balance of the partner’s or related person’s payment obligations and identify the ending balance of each payment obligation that is included in the aggregate amount. For purposes of box 20, code X, a “payment obligation” is defined as an obligation under Regulations section 1.752-2(b)(1) that is recognized under Regulations sections 1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an obligation to restore a deficit capital account upon liquidation), and a “related person” is defined as a related person as defined in Regulations section 1.752-4(b).

The following examples assume that the described partnership liabilities are properly allocable to the partner in the examples under the rules of section 752.

Example 1. In Year 1, a partnership borrows $1,000 (PS Liability 1) from Bank 1 and $1,000 (PS Liability 2) from Bank 2. A partner guarantees payment of up to $500 of PS Liability 1 if any amount of the full $1,000 isn’t recovered by Bank 1 and lends $200 to the partnership, and a person related to the partner guarantees payment of the entire amount of PS Liability 2 of $1,000. The partnership enters $1,700 as the ending balance of the partner’s share of recourse liabilities in item K1 of the Schedule K-1 for tax Year 1. For tax Year 1, the partnership would enter $1,500 in box 20 under code X as the aggregate ending balance of the partner’s or related person’s payment obligations. On the attached statement, the partnership would separately identify each of the partner’s or related person’s payment obligations (for example, $500 with respect to the partner’s guarantee of PS Liability 1 and $1,000 with respect to the related person’s guarantee of PS Liability 2).

Example 2. Assume the same facts as in Example 1, except that, instead of loaning $200 to the partnership, the partner has a $100 DRO and a $20 negative tax capital account and the partnership enters $1,520 as the ending balance of the partner’s share of recourse liabilities in item K1 of the Schedule K-1 for tax Year 1. For tax Year 1, the partnership would enter $1,520 in box 20 under code X as the aggregate ending balance of the partner’s or related person’s payment obligations. On the attached statement, the partnership would separately identify each of the partner’s or related person’s payment obligations (for example, $500 with respect to the partner’s guarantee of PS

Instructions for Form 1065 (2025) 53

Liability 1, $1,000 with respect to the related person’s guarantee of PS Liability 2, and $20 with respect to the partner’s DRO).

Code Y. Net investment income. Use code Y to report any information that may be relevant for partners to figure their NIIT when the information isn’t otherwise identifiable elsewhere on Schedule K-1. Attach a statement that shows a description and dollar amount of each relevant item.

Examples of items reported using code Y may include the following.

• Net rental real estate income reported on Form 1065, Schedule K, line 2, and other net rental income reported on Form 1065, Schedule K, line 3c, derived from a section 212 for-profit activity (and not from a section 162 trade or business).

• Gains and losses from dispositions of assets attributable to a section 212 for-profit activity (and not from a section 162 trade or business).

• Gain reported on the installment sale basis (or attributable to a private annuity) that is attributable to the disposition of property held in a trade or business.

• Gain or loss from the disposition of a partnership interest, but only if such partnership was engaged, directly or indirectly, in one or more trades or businesses, and at least one of those trades or businesses wasn’t trading in financial instruments or commodities.

• The partner’s distributive share of interest income, or interest expense, which is attributable to a loan between the partnership and the partner (self-charged interest).

• If the partnership received a Schedule K-1 (Form 1065), the detail and amounts reported to the partnership in box 20 using code Y.

• If the partnership received a Schedule K-1 (Form 1041), the amount of the adjustment reported.

• Guaranteed payments (reported on Form 1065, Schedule K, line 4b) unrelated to services, such as for the use of capital or attributable to section 736(a)(2) payments for unrealized receivables or goodwill.

• In the case of a common trust fund, any items of income or loss that may be taken into account in figuring the participant’s net investment income (other than qualified dividends, and short-term and long-term capital gains).

• Gain from a trade or business of trading in securities or commodities for which the partnership has elected under section 475(f) to mark to market the securities, the commodities, or both.

• Amounts that are derived from the disposition of the stock of CFCs and QEFs and included in income as dividends under section 1248 for section 1411 purposes.

In the case of stock of CFCs and QEFs directly or indirectly owned by the partnership for which an election under Regulations section 1.1411-10(g) is in effect, the partnership must provide the following information (to the extent such information isn’t otherwise identifiable elsewhere on Schedule K-3) on either an aggregate basis or an entity-by-entity basis.

• Section 951(a) inclusions.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

In the case of stock of CFCs and QEFs directly or indirectly owned by the partnership with respect to which the partnership is engaged in a trade or business described in section 1411(c) (2), the partnership must provide the following information (to the extent such information isn’t otherwise identifiable elsewhere on Schedule K-3) on either an aggregate or an entity-by-entity basis, or the partnership may aggregate this information with other income derived by the partnership that is net investment income under section 1411(c)(1)(A)(ii).

• Section 951(a) inclusions.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

Section 1296 mark-to-market PFICs. In the case of stock of PFICs directly or indirectly owned by the partnership for which an election under section 1296 is in effect, the partnership must provide the following information (to the extent such information isn’t otherwise identifiable elsewhere on Schedule K-3) on either an aggregate basis or an entity-by-entity basis (except as provided below).

• Amounts included in income under section 1296(a)(1).

• Amounts deducted from income under section 1296(a)(2).

In the case of PFIC stock owned directly or indirectly by the partnership for which an election under section 1296 is in effect and with respect to which the partnership is engaged in a trade or business described in section 1411(c)(2), the partnership may aggregate this information with other income derived by the partnership that is net investment income under section 1411(c) (1)(A)(ii).

Section 1291 funds. In the case of stock of PFICs directly or indirectly owned by the partnership with respect to which direct or indirect partners are subject to section 1291, the partnership must provide the following information (to the extent such information isn’t otherwise identifiable elsewhere on Schedule K-3) on an entity-by-entity basis.

• Excess distributions made by a PFIC for which a partner is subject to section 1291.

• Gains derived from the disposition of stock of a PFIC for which a partner is subject to section 1291.

In addition, Regulations section 1.1411-10 provides special rules for stock of CFCs and PFICs owned by the partnership. If the partnership directly or indirectly owns stock of a CFC or PFIC, then additional reporting may be required under code Y.

CFCs and QEFs. In the case of stock of CFCs and QEFs directly or indirectly owned by the partnership, the partnership must provide the name and EIN (if one has been issued) for each CFC and QEF the stock of which is owned by the partnership for which an election under Regulations section 1.1411-10(g) isn’t in effect and for which the partnership isn’t engaged in a trade or business described in section 1411(c)(2). For each of these entities, the partnership must provide the following information on an entity-by-entity basis (to the extent such information isn’t otherwise identifiable elsewhere on Schedule K-3).

• Section 951(a) inclusions.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

• Section 959(d) distributions subject to section 1411.

• Section 1293(c) distributions subject to section 1411.

• Amount of gain or loss derived from dispositions of the stock of CFCs and QEFs that is taken into account for section 1411 purposes.

Code Z. Section 199A information. The qualified business income (QBI) deduction may be taken by eligible taxpayers, including individuals and some trusts and estates. The deduction is determined at the partner level. Partnerships are required to report information necessary for their partners to figure the deduction. Use code Z with an asterisk (Z*) on each partner’s Schedule K-1 and enter “STMT” in the entry space to indicate that the information is provided on an attached statement that separately identifies the partner’s distributive share of:

• Qualified items of income, gain, deduction, and loss;

• W-2 wages;

• Unadjusted basis immediately after acquisition (UBIA) of qualified property;

• Qualified PTP items; and

• Qualified REIT dividends.

54 Instructions for Form 1065 (2025)

The partnership must make an initial determination of which items are qualified items of income, gain, deduction, and loss at its level and report to each partner its distributive share of all items that may be qualified items at the partner level. These items must be separately stated where necessary for the partner to figure the deduction. See Determining the partnership’s QBI or qualified PTP items, later. The partner must then determine whether each item is includible in QBI.

In addition, the partnership must also report whether any of its trades or businesses are specified service trades or businesses (SSTBs) and identify on the statement any trades or businesses that are aggregated. The partnership must also report all QBI information reported to it by any entity in which the partnership has an ownership interest.

Note: The partnership must report each partner’s share of qualified items of income, gain, deduction, and loss from a PTP so that partners can determine their qualified PTP income. However, the W-2 wages and UBIA of qualified property from the PTP shouldn’t be reported because partners can’t use that information in figuring their QBI deduction.

Partnerships should use Statement A—QBI Pass-Through Entity Reporting, later, or a substantially similar statement, to report information for each partner’s distributive share from each trade or business, including QBI items, W-2 wages, UBIA of qualified property, qualified PTP items, and qualified REIT dividends by attaching the completed statement(s) to each partner’s Schedule K-1. The partnership should also use Statement A to report each partner’s distributive share of QBI items, W-2 wages, UBIA of qualified property, qualified PTP items, and qualified REIT dividends reported to the partnership by another entity.

Partnerships should use Statement B—QBI Pass-Through Entity Aggregation Election(s), later, or a substantially similar statement, to report aggregated trades or businesses and provide supporting information to partners on each Schedule K-1.

Partnerships should use Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives, later, or a substantially similar statement, to report the distributive share of QBI and W-2 wages allocable to qualified payments from a specified agricultural or horticultural cooperative for each trade or business. This statement should also be used to report each partner’s share of section 199A(g) deduction reported to the partnership by the specified cooperative.

Determining the partnership’s qualified trades or businesses. The partnership’s qualified trades or businesses include its section 162 trades or businesses, except for SSTBs, or the trade or business of providing services as an employee. A section 162 trade or business generally includes any activity if the partnership’s primary purpose for engaging in the activity is for income or profit and the partnership is involved in the activity with continuity and regularity. For more information on what qualifies as a trade or business for purposes of section 199A, see the Instructions for Form 8995, Qualified Business Income Deduction Simplified Computation; or the Instructions for Form 8995-A, Qualified Business Income Deduction. Rental real estate. Rental real estate may constitute a trade or business for purposes of the QBI deduction if the rental real estate:

• Rises to the level of a trade or business under section 162,

• Satisfies the requirements for the rental real estate safe harbor in Rev. Proc. 2019-38, or

• Meets the self-rental exception (that is, the rental or licensing of property to a commonly controlled trade or business conducted by an individual or relevant

pass-through entity) described in Regulations section 1.199A-1(b)(14).

The determination of whether rental real estate constitutes a trade or business for purposes of the QBI deduction is made by the partnership. The partnership must first make this determination and then only include the distributive share of rental real estate items of income, gain, loss, and deduction from a trade or business on the statement provided to partners. Rental real estate that doesn’t meet any of the three conditions noted above doesn’t constitute a trade or business for purposes of the QBI deduction and must not be included in the QBI information provided to partners.

SSTBs excluded from qualified trades or businesses. SSTBs are generally excluded from the definition of a qualified trade or business. An SSTB is any trade or business providing services in the field of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading or dealing in securities, partnership interests, or commodities, or any other trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. The term “any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners” means any trade or business that consists of (a) a trade or business in which a person receives fees, compensation, or other income from endorsing products or services; (b) a trade or business in which a person licenses or receives fees, compensation, or other income for the use of an individual’s image, likeness, name, signature, voice, or trademark, or any other symbols associated with the individual’s identity; or (c) receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

Partnerships must separately report QBI information for all trades or businesses engaged in by the partnership, including SSTBs, but must identify which trades or businesses are SSTBs.

Aggregation of trades or businesses. A partnership engaged in more than one trade or business may choose to aggregate multiple trades or businesses into a single trade or business for purposes of section 199A if it meets the following requirements.

1. The same person, or group of persons, either directly or through attribution, owns 50% or more of each trade or business for a majority of the tax year, including the last day of the tax year, and all trades or businesses use the same tax year-end.

2. None of the trades or businesses are SSTBs.

3. The trades or businesses to be aggregated meet at least two of the following three factors.

a. They provide products, property, or services that are the

same or that are customarily offered together.

b. They share facilities or share significant centralized

business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources.

c. They’re operated in coordination with, or reliance on,

one or more of the businesses in the aggregated group.

If the partnership chooses to aggregate multiple trades or businesses, it must report the aggregation on Statement B, or a substantially similar statement, and attach it to each Schedule K-1. The statement must provide the information necessary to identify each separate trade or business included in each aggregation, a description of the aggregated trades or businesses, and an explanation of the factors met that allow the aggregation in accordance with Regulations section 1.199A-4. The aggregation statement must be completed each year to

Instructions for Form 1065 (2025) 55

show the partnership’s trade or business aggregations. Failure to disclose the aggregations may cause them to be disaggregated.

The partnership’s aggregations must be reported consistently for all subsequent years, unless there’s a change in facts and circumstances that changes or disqualifies the aggregation. The partnership must provide a written explanation for any changes to prior-year aggregations that describes the change in facts and circumstances.

If the partnership directly or indirectly owns an interest in another relevant pass-through entity (RPE) that aggregates multiple trades or businesses, it must attach a copy of the RPE’s aggregation to each Schedule K-1. The partnership can’t break apart the aggregation of another RPE, but it may add trades or businesses to the aggregation, assuming the requirements above are satisfied.

Determining the partnership’s QBI or qualified PTP items. The partnership’s items of QBI include qualified items of income, gain, deduction, and loss from the partnership’s trades or businesses that are effectively connected with the conduct of a trade or business within the United States. This may include, but isn’t limited to, items such as ordinary business income or losses, section 1231 gains or (losses), section 179 deductions, and interest from debt-financed distributions.

QBI may also include rental income/losses or royalty income, if the activity rises to the level of a trade or business; and gambling gains or losses, but only if the partnership is engaged in the trade or business of gambling. Whether an activity rises to the level of a trade or business must be determined at the entity level and, once made, is binding on partners.

Qualified PTP items include the partnership’s share of qualified items of income, gain, deduction, and loss from an

interest in a PTP and may also include gain or loss recognized on the disposition of the partner’s partnership interest that isn’t treated as a capital gain or loss. If the reporting partnership is itself a PTP, the PTP should report all qualified items of income, gain, deduction, and loss separately for each trade or business engaged in by the PTP.

QBI and qualified PTP items don’t include the following.

• Items that aren’t properly includible in income.

• Items that are treated as capital gain or loss under any provision of the Code.

• Dividends or dividend equivalents, including qualified REIT dividends.

• Interest income (unless received in connection with the trade or business).

• Wage income.

• Income that isn’t effectively connected with the conduct of business within the United States (go to IRS.gov/ECI for more information).

• Commodities transactions, or foreign currency gains or losses described in section 954(c)(1)(C) or (D).

• Income, loss, or deductions from notional principal contracts under section 954(c)(1)(F).

• Annuities (unless received in connection with the trade or business).

• Guaranteed payments described in section 707(c) received by the entity for services rendered to a partnership.

• Payments described in section 707(a) received by the entity for services rendered to a partnership.

QBI flowchart. Partnerships may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to partners.

Flowchart To Help Determine if Items Are Qualified Business Income

Specific instructions for Statement A—QBI Pass-Through Entity Reporting.

QBI or qualified PTP items. The partnership (including PTPs) must first determine if it’s engaged in one or more trades or businesses. It must then determine if any of its trades or businesses are SSTBs. It must also determine whether it has qualified PTP items from an interest in a PTP. It must indicate the

status in the appropriate checkboxes for each trade or business (or aggregated trade or business) reported.

Note: SSTBs and PTPs can’t be aggregated with any other trade or business. So, if the “Aggregation” box is checked, the “SSTB” and “PTP” boxes for that specific aggregated trade or business shouldn’t be checked.

56 Instructions for Form 1065 (2025)

Next, the partnership must report to each partner their distributive share of all items that are QBI or qualified PTP items for each trade or business the partnership owns directly or indirectly. Use the QBI flowchart above to determine if an item is reportable as a QBI item or qualified PTP item subject to partner-specific determinations.

The descriptions on the statement generally match the descriptions reported on Schedule K-1. So the amounts should reflect each trade’s or business’s portion of the qualified items of income, gain, deduction, or loss reported in the applicable box of the partner’s Schedule K-1. For example, the amount reported on the “Ordinary business income (loss)” line of this statement should reflect the attributable portion of qualified items of income, gain, deduction, and loss for each trade or business included in the “Ordinary business income (loss)” reported in box 1 of the partner’s Schedule K-1. Each item included under “Other income (loss)” and “Other deductions” must be stated separately, identifying the nature and amount of each item.

W-2 wages and UBIA of qualified property. The partnership must determine the W-2 wages and UBIA of qualified property properly allocable to QBI for each qualified trade or business and report the distributive share to each partner on Statement A, or a substantially similar statement, attached to Schedule K-1. This includes the pro rata share of W-2 wages and UBIA of qualified property reported to the partnership from any qualified trades or businesses of an RPE the partnership owns directly or indirectly. However, partnerships that own a direct or indirect interest in a PTP may not include any amounts for W-2 wages or UBIA of qualified property from the PTP, as the W-2 wages and UBIA of qualified property from a PTP aren’t allowed in figuring the W-2 wage and UBIA limitations.

The W-2 wages are amounts paid to employees described in sections 6051(a)(3) and (8). If the partnership conducts more than one trade or business, it must allocate the W-2 wages among its trades or businesses. See Rev. Proc. 2019-11, 2019-09 I.R.B. 742, for more information.

The unadjusted basis of qualified property is figured by adding the unadjusted basis of all qualified assets immediately after acquisition. Qualified property includes all tangible property subject to depreciation under section 167, for which the depreciable period hasn’t ended, that is held and used by the trade or business during the tax year and held on the last day of the tax year. The depreciable period ends on the later of 10 years after the property is placed in service or the last day of the full year for the applicable recovery period under section 168.

Qualified REIT dividends. The partnership must report the distributive share of any qualified REIT dividends to each partner on Statement A, or a substantially similar statement, attached to Schedule K-1. Qualified REIT dividends don’t have to be separately reported by trades or businesses and can be reported as a single amount to partners. Qualified REIT dividends include any dividend the partnership receives on REIT stock held for more than 45 days (taking into account the principles of sections 246(c)(3) and (4)) during the 91-day period beginning on the date that is 45 days before the date on which such stock becomes ex-dividend with respect to such dividend, for which the payment isn’t obligated to someone else, isn’t a capital gain dividend under section 857(b)(3), and isn’t a qualified dividend under section 1(h)(11), plus any section 199A dividends received from a RIC that are permitted to be treated as qualified REIT dividends under Regulations section 1.199A-3(d).

Fiscal year-end partnerships. For purposes of determining the QBI or qualified PTP items, UBIA of qualified property, and the aggregate amount of qualified REIT dividends, fiscal year-end partnerships include all items from the tax (fiscal) year.

For purposes of determining W-2 wages, fiscal year-end partnerships include amounts paid to employees under sections 6051(a)(3) and (8) for the calendar year ended with or within the partnership’s tax year. If the partnership conducts more than one trade or business, it must allocate W-2 wages among its trades or businesses. See Rev. Proc. 2019-11 for more information.

Statement A—QBI Pass-Through Entity Reporting

Specific instructions for Statement B—QBI Pass-Through Entity Aggregation Election(s). If the partnership elects to aggregate more than one trade or business that meets all the

requirements to aggregate, the partnership must report the aggregation to partners on Statement B, or a substantially similar statement, and attach it to each Schedule K-1. The partnership

Instructions for Form 1065 (2025) 57

must indicate trades or businesses that were aggregated by checking the appropriate box on Statement A for each aggregated trade or business. The partnership must also provide a description of the aggregated trade or business and an explanation of the factors met that allow the aggregation.

The aggregation statement must be completed each year to show the partnership’s trade or business aggregations. Failure to disclose the aggregations may cause them to be disaggregated. The partnership’s aggregations must be reported consistently for all subsequent years, unless there’s a change in facts and circumstances that changes or disqualifies the aggregation. The

partnership must provide a written explanation for any changes to prior-year aggregations that describes the change in facts and circumstances.

If the partnership holds a direct or indirect interest in an RPE that aggregates multiple trades or businesses, the partnership must also include a copy of the RPE’s aggregations with each partner’s Schedule K-1. The partnership can’t break apart the aggregation of another RPE, but it may add trades or businesses to the aggregation, assuming the aggregation requirements are satisfied.

Statement B—QBI Pass-Through Entity Aggregation Election(s)

Partnership’s name: Partnership’s EIN:

Trade or business aggregation 1*

Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section 1.199A-4. In addition, if the partnership holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach a copy of the RPE’s aggregations.

Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, or disposed of, or having ceased operations. If yes, explain.

***** If the partnership has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.

Specific instructions for Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives.

QBI items and W-2 wages allocable to qualified payments. If the partnership is a patron of a specified agricultural or horticultural cooperative, the partnership must provide the share of QBI items and W-2 wages allocable to qualified payments from each trade or business to each of its partners on Statement C, or a substantially similar statement, and attach it to each Schedule K-1 so each partner can figure their patron reduction under section 199A(b)(7).

QBI items and W-2 wages allocable to qualified payments include QBI items included on Statement A that are allocable to the qualified payments reported to the partnership on Form 1099-PATR from the cooperative. Section 199A(g) deduction. The partnership must report to its partners their share of any section 199A(g) deduction passed through from the cooperative, as reported on Form 1099-PATR. Section 199A(g) deductions don’t have to be reported separately by trades or businesses and can be reported as a single amount to partners.

58 Instructions for Form 1065 (2025)

Code AA. Section 704(c) information. For partnerships other than PTPs, if a partner’s taxable income or loss on any line item on Schedule K-1 (Form 1065) includes an allocation of any income or deduction item determined by applying section 704(c), include the sum of such income and deduction items here.

Example 1—single section 704(c) allocation. Partnership P has two partners, A and B. A and B share all items of income, loss, and deduction equally, except for items required to be allocated under section 704(c). A contributes property X with an FMV of $100 and a tax basis of $60. X is depreciable over 10 years. B contributes $100. The traditional method is used to allocate section 704(c) items pertaining to X. In the first year, the partnership has $10 of section 704(b) book depreciation, which is allocated equally to A and B for book purposes ($5 each). However, P only has $6 of tax depreciation. The partnership has no other income or deductions during the tax year. Under the traditional method, P allocates $1 to A and $5 to B for tax purposes. Assuming this is the only item where taxable income is affected by section 704(c) allocations during the current year, the partnership would report deductions of $1 for A and $5 for B in box 20 of Schedule K-1 using code AA.

Example 2—multiple section 704(c) allocations. The facts are the same as in Example 1, except in addition to the facts in that example, A also contributes property Y with an FMV of $100 and a remaining tax basis of $0. If Y were newly placed in service, its depreciable life would be 10 years straight line. The partnership adopts the remedial method with respect to property Y. In the first year, P has $10 of section 704(b) book depreciation, which is allocated equally to A and B for book purposes ($5 each). However, P has $0 of tax depreciation with respect to property Y. Under the remedial method, for tax purposes, P allocates $5 of remedial income to A and $5 of a remedial depreciation deduction to B with respect to property Y. In this case, the partnership would report in box 20 of Schedule K-1 using code AA, that A has $4 of taxable income, determined by applying section 704(c) ($1 of depreciation deductions from property X and $5 of remedial income from property Y) and that B has $10 of deductions for tax purposes, determined by applying section 704(c) (consisting of $5 depreciation from property X and $5 remedial depreciation from property Y).

Required reporting for the sale or exchange of an interest in a partnership (codes AB, AC, and AD). When a sale or exchange of a partnership interest occurs and the partnership holds section 751 property such as unrealized receivables defined in section 751(c), property subject to unrecaptured section 1250 gain, inventory items defined in section 751(d), or collectibles, the partnership must report to the transferor partner their share of the gain or loss figured for the following categories of assets. If there was an exchange described in section 751(a), this information must also be reported on Form 8308. See the Instructions for Form 8308 for additional information.

Code AB. Section 751 gain (loss). Section 751 “hot assets” (unrealized receivables and inventory items).

Caution: In addition to the information reported in box 20c for codes AC and AD, you may separately need to report in boxes 9b and 9c the amount of collectibles (28%) gain (loss) and unrecaptured section 1250 gain flowing through the partnership.

Code AC. Section 1(h)(5) collectibles gain. Section 1(h) (5) collectible assets.

Code AD. Section 1(h)(6) unrecaptured section 1250 gain. Section 1(h)(6) unrecaptured section 1250 gain assets (depreciable real property) are section 751 property per Regulations section 1.751-1(c)(4)(v).

Code AE. Excess taxable income. If the partnership is required to file Form 8990, it may determine it has excess taxable income. If so, enter the amount from Form 8990, Part II, line 36, for excess taxable income.

Schedule K-1. Enter the partner’s amount of excess taxable income. The partner will enter the amount in column (f) of Form 8990, Schedule A, line 43, if the partner is required to file Form 8990.

Code AF. Excess business interest income. If the partnership is required to file Form 8990, it may determine it has excess business interest income. If so, enter the amount from Form 8990, Part II, line 37, for excess business interest income.

Schedule K-1. Enter the partner’s amount of excess business interest income. The partner will enter the amount in column (g) of Form 8990, Schedule A, line 43, if the partner is required to file Form 8990.

Instructions for Form 1065 (2025) 59

Code AG. Gross receipts for section 448(c). Regulations section 1.163(j)-2(d)(2)(iii) requires that partners in a partnership include a share of partnership gross receipts in proportion to their share of gross income under section 703 (unless the partnership is treated as one person under the aggregation rules of section 448(c)). Partnerships with current-year gross receipts (defined in Temporary Regulations section 1.448-1T(f)(2)(iv)) greater than $5 million are required to report to partners their distributive shares of their current-year gross receipts, as well as their distributive shares of gross receipts for the 3 immediately preceding tax years. If a partnership and a partner are treated as a single employer under the section 448(c) aggregation rules, and the partnership has current-year gross receipts greater than $5 million, then the partnership should also report its current-year total gross receipts, as well as its total gross receipts for the 3 immediately preceding tax years, to that partner. See IRS.gov/Newsroom/FAQs-Regarding-the- Aggregation-Rules-Under-Section-448c2-That-Apply-to-the- Section-163j-Small-Business-Exemption . Partnerships whose current-year gross receipts are less than or equal to $5 million may also use this code to report gross receipts.

Code AH. Noncash charitable contributions. If the partnership made a noncash charitable contribution, report the partner’s share of the partnership’s adjusted basis of the property for basis limitation purposes.

Code AI. Interest and tax on deferred compensation to partners. Interest and additional tax on deferred compensation under a section 409A nonqualified deferred compensation plan that doesn’t meet the requirements of section 409A is included in gross income. Include in this amount any earnings on these deferrals. This amount must also be included on Schedule K, line 4. For details, see the regulations under section 409A. These regulations don’t provide guidance on the application of section 409A to arrangements between partnerships and partners. For interim guidance on such arrangements, see Q&A-7 in Notice 2005-1, 2005-2 I.R.B. 274, and the information provided in T.D. 9321. Also see Notice 2006-79, 2006-43 I.R.B. 763; Notice 2007-86, 2007-46 I.R.B. 990; and Notice 2008-113, 2008-51 I.R.B. 1305, for additional information on transitional and relief rules.

Code AJ. Excess business loss limitation. Attach a statement to each partner’s Schedule K-1 showing the partner’s distributive share of the aggregate business activity gross income or gain, and the aggregate business activity deductions, from all the partnership’s trades or businesses. The partners use this, along with other information, to figure their excess business loss limitation under section 461(l).

Code AK. Gain from mark-to-market election. If a partnership is a trader in securities, commodities, or both, and has properly elected under section 475(f) to mark to market the securities, the commodities, or both, the partnership should report ordinary gain or loss from the securities or commodities (or both securities and commodities) trading activities separately from any other ordinary gain or loss. Gain from the mark-to-market election is relevant for partners to figure the NIIT. See the instructions regarding net investment income (code Y), earlier.

Code AL. Section 721(c) partnership. If the partnership is a section 721(c) partnership, line 20c must include the amounts relating to any remedial items made under the remedial allocation method (described in Regulations sections 1.704-3(d) and -3(d)(5)(iii)) with respect to section 721(c) property. Enter a separate code AL in box 20 of Schedule K-1 for each amount for items allocated to the partner. For the U.S. transferor, enter a separate code AL, if any, for the total remedial income allocated to the U.S. transferor, total gain recognized due to an acceleration event, and/or total gain recognized due to a section

367 transfer reflected in columns (c), (d), and (e), respectively, of Schedule G (Form 8865), Part II. For all other partners of the section 721(c) partnership, enter a separate code AL for the total amount of remedial items allocated to such partner relating to section 721(c) property. See Regulations sections 1.721(c)-3 and -6.

Code AM. Section 1061 information. The partnership will furnish to the partners any information needed to figure their capital gains with respect to an applicable partnership interest. Go to IRS.gov/Businesses/Partnerships/Section-1061- Reporting-Guidance-FAQs .

Code AN. Farming and fishing business. If the partnership is involved in a farming or fishing business, report the gross income and gains as well as the losses and deductions attributable to such business activities. See section 1301.

Code AO. PTP information. Any information a partner that is a PTP may need to determine if it meets the 90% qualifying income test of section 7704(c)(2). A partner is required to notify the partnership of their status as a PTP.

Code AP. Inversion gain. Any income or gain reported on Schedule K, lines 1 through 11, that qualifies as inversion gain, if the partnership is an expatriated entity or is a partner in an expatriated entity. For details, see section 7874. Attach a statement to Form 1065 that shows the amount of each type of income or gain included in the inversion gain. The partnership must report each partner’s distributive share of the inversion gain in box 20 of Schedule K-1 using code AP. Attach a statement to Schedule K-1 that shows the partner’s distributive share of the amount of each type of income or gain included in the inversion gain.

Code AQ. Conservation reserve program payments. The partner’s distributive share of any conservation reserve program payments made to the partnership.

Code AR. IRA disclosure. For IRA partners with an amount reported in box 20, code V, include code AR with the IRA partner’s unique EIN (not the custodian’s EIN).

A partnership with an IRA partner that has never obtained an EIN or hasn’t previously filed a Form 990-T isn’t required to list the IRA partner’s EIN in box 20 of Schedule K-1 (Form 1065) using code AR for tax year 2025. This doesn’t relieve the IRA partner of the requirement to timely file Form 990-T and pay any tax due. However, for all tax years after 2025, partnerships with IRA partners are required to include the IRA partner’s EIN on Schedule K-1 (Form 1065) if the IRA partner is receiving an allocation of UBTI.

Caution: Enter the EIN without any dashes.

Code AS. Qualifying advanced coal project property and qualifying gasification project property. Attach a statement to Schedule K-1 showing the partner’s distributive share of the amounts that the partner will use to figure the amounts to report in their Form 3468, Part II. See the Instructions for Form 3468 for details.

Code AT. Qualifying advanced energy project property. Attach a statement to Schedule K-1 showing the partner’s distributive share of the amounts that the partner will use to figure the amounts to report in their Form 3468, Part III. See the Instructions for Form 3468 for details.

Code AU. Advanced manufacturing investment property. Attach a statement to Schedule K-1 showing the partner’s distributive share of the amounts that the partner will use to figure the amount to report in their Form 3468, Part IV. See the Instructions for Form 3468 for details.

Code AV. Clean electricity investment property. Attach a statement to Schedule K-1 showing the partner’s distributive

60 Instructions for Form 1065 (2025)

share of the amounts that the partner will use to figure the amount to report in their Form 3468, Part V. See the Instructions for Form 3468 for details.

Code AW. Reportable transactions. If the partnership participates in a transaction that must be disclosed on Form 8886, both the partnership and its partners may be required to file Form 8886. The partnership must determine if any of its partners are required to disclose the transaction and provide those partners with information they will need to file Form 8886. This determination is based on the category(ies) under which a transaction qualified for disclosures. See Form 8886 and its instructions for details.

Code AX. Corporate alternative minimum tax (CAMT). If the partnership is furnishing information needed for a partner to determine its distributive share of the partnership’s adjusted financial statement income, use code AX.

Code AY. Foreign partners, Form 8990, Schedule A. Form 8990, Schedule A, requires certain foreign partners to report their allocable share of EBIE, excess taxable income, and excess business interest income, if any, that is attributable to income effectively connected with a U.S. trade or business. Provide on Schedule K-1 the information needed to complete Form 8990, Schedule A, for a partner that is a foreign corporation or nonresident alien or is a partnership (domestic or foreign) in which you know, or have reason to know, that one or more of the partners is a foreign corporation or nonresident alien.

Code AZ. Reimbursement of preformation expenditures. Enter the total amount of any reimbursement of preformation expenditures made to a partner that meet the exception to the disguised sale rules under Regulations section 1.707-3. This would include transfers of money or other consideration (including the assumption of or the taking subject to a liability) by the partnership to the partner that would otherwise constitute a disguised sale of property under Regulations section 1.707-3, if not for the preformation expenditure exception under Regulations section 1.707-4(d).

These payments typically relate to capital expenditures incurred by the partner for the partnership and reimbursed within 2 years of the contribution. See Regulations section 1.707-4(d).

Codes BA through BD. Reserved for future use.

Code ZZ. Other. Any other information the partners need to prepare their tax returns, including information needed to prepare state and local tax returns.

Sale of qualified farmland property. On an attached statement, use code ZZ to provide partners information they need to complete Form 1062 and Schedule A (Form 1062) if they make the section 1062 election. Title the attachment “Section 1062 Information Schedule K-1, box 20, code ZZ” and include a copy of the covenant. See the Instructions for Form 1062 for additional information.

Line 21. Total Foreign Taxes Paid or Accrued

Enter in U.S. dollars the total creditable foreign taxes (described in section 901 or 903) that were paid or accrued by the partnership (according to its method of accounting for such taxes). Enter the amount paid or accrued on line 21. Translate these amounts into U.S. dollars by using the applicable exchange rate (see Pub. 514, Foreign Tax Credit for Individuals).

The information on line 21 is solely for purposes of computing basis. A partnership must complete Schedules K-2 and K-3 to provide the information necessary for the partner to claim a foreign tax credit.

Line 22. More Than One At-Risk Activity

If the partnership conducted more than one at-risk activity, the partnership is required to provide certain information separately for each at-risk activity to its partners. This information is reported on an attached statement to Schedule K-1. Check the box to indicate there’s more than one at-risk activity for which a statement is attached. See At-risk activity reporting requirements, earlier, for details. Also, see Notice 2019-66 for certain at-risk reporting.

Line 23. More Than One Passive Activity

If the partnership conducted more than one activity (determined for purposes of the passive activity loss and credit limitations), the partnership is required to provide information separately for each activity to its partners. This information is reported on an attached statement to Schedule K-1. Check the box to indicate there’s more than one passive activity for which a statement is attached. See Passive Activity Reporting Requirements , earlier, for details.