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operations that you may have. You may

limitations, and the passive activity

The at-risk rules generally limit the

lose certain tax benefits if the partnership

limitations. Each of these limitations is

amount of loss and other deductions that

participated in, or cooperated with, an

discussed separately below.

you can claim to the amount you could

international boycott. See Form 5713 and

actually lose in the activity. These losses

Other limitations may apply to specific

the instructions for more information.

and deductions include a loss on the

deductions (for example, the section 179

disposition of assets and the section 179

expense deduction). Generally, these

Definitions

expense deduction. However, if you

limitations apply before the basis, at-risk,

acquired your partnership interest before

and passive loss limitations.

General Partner

1987, the at-risk rules do not apply to

losses from an activity of holding real

Basis Rules

A general partner is a partner who is

property placed in service before 1987 by

personally liable for partnership debts.

Generally, you may not claim your share

the partnership. The activity of holding

of a partnership loss (including a capital

Limited Partner

mineral property does not qualify for this

loss) to the extent that it is greater than

exception. The partnership should identify

A limited partner is a partner in a

the adjusted basis of your partnership

on an attachment to Schedule K-1 the

partnership formed under a state limited

interest at the end of the partnership’s tax

amount of any losses that are not subject

partnership law, whose personal liability

year.

to the at-risk limitations.

for partnership debts is limited to the

The partnership is not responsible for

amount of money or other property that

Generally, you are not at risk for

keeping the information needed to figure

the partner contributed or is required to

amounts such as the following:

the basis of your partnership interest.

contribute to the partnership. Some

•

Nonrecourse loans used to finance the

Although the partnership does provide an

members of other entities, such as

activity, to acquire property used in the

analysis of the changes to your capital

domestic or foreign business trusts or

activity, or to acquire your interest in the

account in Item J of Schedule K-1, that

limited liability companies that are

activity, that are not secured by your own

information is based on the partnership’s

classified as partnerships, may be treated

property (other than the property used in

books and records and cannot be used to

as limited partners for certain purposes.

the activity). See the instructions for Item

figure your basis.

See, for example, Temporary Regulations

F on page 5 for the exception for qualified

section 1.469-5T(e)(3), which treats all

You can figure the adjusted basis of

nonrecourse financing secured by real

members with limited liability as limited

your partnership interest by adding items

property.

partners for purposes of section

•

that increase your basis and then

Cash, property, or borrowed amounts

469(h)(2).

subtracting items that decrease your

used in the activity (or contributed to the

basis.

Nonrecourse Loans

activity, or used to acquire your interest in

the activity) that are protected against

Nonrecourse loans are those liabilities of

Items that increase your basis are:

•

loss by a guarantee, stop-loss agreement,

the partnership for which no partner bears

Money and your adjusted basis in

or other similar arrangement (excluding

the economic risk of loss.

property contributed to the partnership.

•

casualty insurance and insurance against

Your share of the increase in the

tort liability).

Elections

partnership’s liabilities (or your individual

•

Amounts borrowed for use in the

liabilities caused by your assumption of

Generally, the partnership decides how to

activity from a person who has an interest

partnership liabilities).

figure taxable income from its operations.

•

in the activity, other than as a creditor, or

Your share of the partnership’s income

However, certain elections are made by

who is related, under section 465(b)(3), to

(including tax-exempt income).

you separately on your income tax return

•

a person (other than you) having such an

Your share of the excess of the

and not by the partnership. These

interest.

deductions for depletion over the basis of

elections are made under the following

To help you complete Form 6198, the

the property subject to depletion.

code sections:

partnership should specify on an

•

Items that decrease your basis (but

Section 59(e) (deduction of certain

attachment to Schedule K-1 your share of

not below zero) are:

qualified expenditures ratably over the

•

the total pre-1976 losses from a section

Money and the adjusted basis of

period of time specified in that section).

465(c)(1) activity for which there existed a

property distributed to you.

For more information, see the instructions

•

corresponding amount of nonrecourse

Your share of the decrease in the

for lines 18a and 18b of Schedule K-1 on

liability at the end of the year in which the

partnership’s liabilities (or your individual

page 9.

losses occurred. Also, you should get a

•

liabilities assumed by the partnership).

Section 108(b)(5) (income from the

•

separate statement of income, expenses,

Your share of the partnership’s losses

discharge of indebtedness).

etc., for each activity from the partnership.

•

(including capital losses).

Section 617 (deduction and recapture

•

Your share of the partnership’s section

of certain mining exploration

Passive Activity Limitations

179 expense deduction (even if you

expenditures).

•

Section 469 provides rules that limit the

cannot deduct all of it).

Section 901 (foreign tax credit).

•

deduction of certain losses and credits.

Your share of the partnership’s

These rules apply to partners who:

nondeductible expenses.

Additional Information

•

Are individuals, estates, trusts, closely

The amount of your deduction for

For more information on the treatment of

held corporations, or personal service

depletion of any partnership oil and gas

partnership income, credits, deductions,

corporations and

property (not to exceed your allocable

•

etc., see Pub. 541, Partnerships, and

share of the adjusted basis of that

Have a passive activity loss or credit for

Pub. 535, Business Expenses.

property).

the tax year.

For more details on the basis rules,

Generally, passive activities include:

To get forms and publications, see the

see Pub. 541.

instructions for your tax return.

1. Trade or business activities in

which you did not materially participate

At-Risk Limitations

Limitations on Losses,

and

Generally, if you have (a) a loss or other

2. Activities that meet the definition of

Deductions, and Credits

deduction from any activity carried on as

rental activities under Temporary

There are three separate potential

a trade or business or for the production

Regulations section 1.469-1T(e)(3) and

limitations on the amount of partnership

of income by the partnership, and (b)

Regulations section 1.469-1(e)(3).

losses that you may deduct on your

amounts in the activity for which you are

Passive activities do not include:

return. These limitations and the order in

not at risk, you will have to complete

which you must apply them are as

Form 6198, At-Risk Limitations, to figure

1. Trade or business activities in

follows: the basis rules, the at-risk

your allowable loss.

which you materially participated.

-2-

Partner’s Instructions for Schedule K-1 (Form 1065)

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Credits, Deductions, Etc. (For Partner'S Use Only) - 2001 Page 2

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