Partner'S Instructions For Schedule K-1 (Form 1065-B)

must be made by any partner who is

Passive activities do not include:

details on making this election, see the

either a:

Instructions for Schedule E (Form 1040).

1. Trade or business activities in

•

General partner or

which you materially participated.

If you are married filing jointly, either

•

Limited partner who is a disqualified

you or your spouse must separately meet

2. Rental real estate activities in which

person (as defined on page 2) with

both of the above conditions, without

you materially participated if you were a

respect to items of income, gain, loss,

taking into account services performed by

“real estate professional” for the tax year.

deduction, and credit attributable to

the other spouse.

You were a real estate professional only if

partnership oil and gas properties.

A real property trade or business is

you met both of the following conditions.

In addition, the partnership is required

any real property development,

a. More than half of the personal

to provide each general partner and

redevelopment, construction,

services you performed in trades or

disqualified person the information

reconstruction, acquisition, conversion,

businesses were performed in real

necessary to comply with the passive

rental, operation, management, leasing,

property trades or businesses in which

activity rules of section 469. Items of

or brokerage trade or business. Services

you materially participated and

income, gain, loss, credit, etc., must be

you performed as an employee are not

b. You performed more than 750

separately reported to general partners

treated as performed in a real property

hours of services in real property trades

for each trade or business, rental real

trade or business unless you owned more

or businesses in which you materially

estate, and other rental activity.

than 5% of the stock (or more than 5% of

participated.

the capital or profits interest) in the

Except for the PTP discussion on

employer.

page 5, the following information

Note. For a closely held C corporation

3. Working interests in oil or gas

on passive activity limitations

(defined in section 465(a)(1)(B)), the

CAUTION

wells.

applies only to general partners.

above conditions are treated as met if

4. The rental of a dwelling unit any

more than 50% of the corporation’s gross

Generally, passive activities include:

partner used for personal purposes during

receipts were from real property trades or

the year for more than the greater of 14

1. Trade or business activities in

businesses in which the corporation

days or 10% of the number of days that

which you did not materially participate

materially participated.

the residence was rented at fair rental

and

value.

For purposes of this rule, each interest

2. Activities that meet the definition of

5. Activities of trading personal

in rental real estate is a separate activity,

rental activities under Temporary

property for the account of owners of

unless you elect to treat all interests in

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

interests in the activities.

rental real estate as one activity. For

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

Material participation. You must

Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership

determine if you (a) materially participated

in each trade or business activity held

(Keep for your records.)

through the partnership and (b) were a

real estate professional (defined above),

1. Your adjusted basis at the end of the prior year. Do not enter less

in each rental real estate activity held

than zero. Enter -0- if this is your first tax year. . . . . . . . . . . . . .

through the partnership. All

determinations of material participation

Increases:

are made based on your participation

2. Money and your adjusted basis in property contributed to the

during the partnership’s tax year.

partnership less the associated liabilities (but not less than zero).

Material participation standards for

3. Your increased share of or assumption of partnership liabilities.

partners who are individuals are listed

(Subtract your share of liabilities shown on your 2004 Schedule

below. Special rules apply to certain

K-1 from your share of liabilities shown on your 2005 Schedule K-1

retired or disabled farmers and to the

and add the amount of any partnership liabilities you assumed

surviving spouses of farmers. See the

during the tax year.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Instructions for Form 8582 for details.

Corporations should refer to the

4. Your share of the partnership’s income or gain (including

Instructions for Form 8810 for the material

tax-exempt income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

participation standards that apply to them.

5. Any gain recognized this year on contributions of property. Do not

Individuals (other than limited

include gain from transfer of liabilities . . . . . . . . . . . . . . . . . . . .

partners). If you are an individual (either

Decreases:

a general partner or a limited partner who

owned a general partnership interest at all

6. Withdrawals and distributions of money and the adjusted basis of

times during the tax year), you materially

property distributed to you from the partnership. Do not include the

participated in an activity only if one or

amount of property distributions included in the partner’s income

more of the following apply.

(taxable income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. You participated in the activity for

Caution. A distribution may be taxable if the amount exceeds your

more than 500 hours during the tax year.

adjusted basis of your partnership interest immediately before the

2. Your participation in the activity for

distribution.

the tax year constituted substantially all

the participation in the activity of all

7. Your share of the partnership’s nondeductible expenses that are

individuals (including individuals who are

not capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

not owners of interests in the activity for

8. Your share of the partnership’s losses and deductions (including

the tax year).

capital losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. You participated in the activity for

more than 100 hours during the tax year,

9. Your adjusted basis in the partnership at end of this tax year. (Add

and your participation in the activity for

lines 1 through 5 and subtract lines 6 through 8 from the total. If

the tax year was not less than the

zero or less, enter -0-.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

participation in the activity of any other

Caution. The deduction for your share of the partnership’s losses

individual (including individuals who were

and deductions is limited to your adjusted basis in your partnership

not owners of interests in the activity) for

interest. If you entered zero on line 9 and the amount computed for

the tax year.

line 9 was less than zero, a portion of your share of the partnership

4. The activity was a significant

losses and deductions may not be deductible (See Basis Rules on

participation activity for the tax year, and

page 2 for more information.)

you participated in all significant

participation activities (including activities

-3-

Partner'S Instructions For Schedule K-1 (Form 1065-B) - 2005 Page 3

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