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

3. Trading personal property for the

Example. If you have Schedule E

not limited by the passive loss rules. A

account of owners of interests in the

income of $8,000, and a Form 4797 prior

fully taxable transaction is one in which

activity.

year unallowed loss of $3,500 from the

you recognize all your realized gain

passive activities of a particular PTP, you

(loss). Report the income and losses on

have a $4,500 overall gain ($8,000 −

the forms and schedules you normally

Self-charged interest. The partnership

$3,500). On Schedule E (Form 1040), line

use.

must report any “self-charged” interest

28, report the $4,500 net gain as

income or expense that resulted from

Note. For rules on the disposition of an

nonpassive income in column (j). In

loans between you and the partnership

entire interest reported using the

column (g), report the remaining

(or between the partnership and another

Schedule E gain of $3,500 ($8,000 −

installment method, see the Instructions

partnership in which you have an

for Form 8582.

$4,500). On the appropriate line of Form

interest). If there was more than one

4797, report the prior year unallowed loss

activity, the partnership will provide a

of $3,500. Be sure to enter “From PTP” to

statement allocating the interest income

the left of each entry space.

Specific Instructions

or expense with respect to each activity.

3. If you have an overall loss (but did

The self-charged interest rules do not

not dispose of your entire interest in the

apply to your partnership interest if the

Publicly Traded

PTP to an unrelated person in a fully

partnership made an election under

taxable transaction during the year), the

Regulations section 1.469-7(g) to avoid

Partnership (PTP)

losses are allowed to the extent of the

the application of these rules. See the

If the “publicly traded partnership” box is

income, and the excess loss is carried

Instructions for Form 8582 for more

checked, you are a partner in a publicly

forward to use in a future year when you

information.

traded partnership (PTP) and must follow

have income to offset it. Report as a

Publicly traded partnerships (PTPs).

the rules under Publicly traded

passive loss on the schedule or form you

The passive activity limitations are

partnerships discussed above.

normally use the portion of the loss equal

applied separately for items (other than

to the income. Report the income as

Partner’s Share of

the low-income housing credit and the

passive income on the form or schedule

rehabilitation credit) from each publicly

you normally use.

Liabilities

traded partnership (PTP). Thus, a net

Example. You have a Schedule E loss

passive loss from a PTP may not be

The partnership will show your share of

of $12,000 (current year losses plus prior

deducted from other passive income.

the partnership’s nonrecourse liabilities,

year unallowed losses) and a Schedule D

partnership-level qualified nonrecourse

Instead, a passive loss from a PTP is

gain of $7,200. Report the $7,200 gain on

suspended and carried forward to be

financing, and other liabilities as of the

the appropriate line of Schedule D. On

applied against passive income from the

end of the partnership’s tax year. If you

Schedule E (Form 1040), line 28, report

terminated your interest in the partnership

same PTP in later years. If the partner’s

$7,200 of the losses as a passive loss in

entire interest in the PTP is completely

during the tax year, the amounts should

column (f). Carry forward to 2006 the

disposed of, any unused losses are

reflect the share that existed immediately

unallowed loss of $4,800 ($12,000 −

allowed in full in the year of disposition.

before the total disposition. A partner’s

$7,200).

“other liability” is any partnership liability

If you have an overall gain from a PTP,

If you have unallowed losses from

for which a partner is personally liable.

the net gain is nonpassive income. In

more than one activity of the PTP or from

Use the total of the three amounts for

addition, the nonpassive income is

the same activity of the PTP that must be

computing the adjusted basis of your

included in investment income to figure

reported on different forms, you must

partnership interest.

your investment interest expense

allocate the unallowed losses on a pro

deduction.

rata basis to figure the amount allowed

Generally, you can use only the

from each activity or on each form.

amounts shown next to “Qualified

Do not report passive income, gains,

nonrecourse financing” and “Other” to

or losses from a PTP on Form 8582.

To allocate and keep a record of

compute your amount at risk. Do not

Instead, use the following rules to figure

TIP

the unallowed losses, use

include any amounts that are not at risk if

and report on the proper form or schedule

Worksheets 5, 6, and 7 of Form

such amounts are included in either of

your income, gains, and losses from

8582. List each activity of the PTP in

these categories.

passive activities that you held through

Worksheet 5. Enter the overall loss from

If your partnership is engaged in two or

each PTP you owned during the tax year.

each activity in column (a). Complete

more different types of activities subject to

1. Combine any current year income,

column (b) of Worksheet 5 according to

the at-risk provisions, or a combination of

gains (losses), and any prior year

its instructions. Multiply the total

at-risk activities and any other activity, the

unallowed losses to see if you have an

unallowed loss from the PTP by each

partnership should give you a statement

overall gain (loss) from the PTP. Include

ratio in column (b) and enter the result in

showing your share of nonrecourse

only the same types of income and losses

column (c) of Worksheet 5. Then,

liabilities, partnership-level qualified

you would include in your net income or

complete Worksheet 6 if all the loss from

nonrecourse financing, and other

loss from a non-PTP passive activity. See

the same activity is to be reported on one

liabilities for each activity.

Pub. 925 for more details.

form or schedule. Use Worksheet 7

Qualified nonrecourse financing.

2. If you have an overall gain, the net

instead of Worksheet 6 if you have more

Qualified nonrecourse financing generally

than one loss to be reported on different

gain portion (total gain minus total losses)

includes financing for which no one is

is nonpassive income. On the form or

forms or schedules for the same activity.

personally liable for repayment that is

Enter the net loss plus any prior year

schedule you normally use, report the net

borrowed for use in an activity of holding

gain portion as nonpassive income and

unallowed losses in column (a) of

real property and that is loaned or

the remaining income and the total losses

Worksheet 6 (or Worksheet 7 if

guaranteed by a federal, state, or local

applicable). The losses in column (c) of

as passive income and loss. To the left of

government or borrowed from a

the entry space, enter “From PTP.” It is

Worksheet 6 (column (e) of Worksheet 7)

“qualified” person. Qualified nonrecourse

important to identify the nonpassive

are the allowed losses to report on the

financing secured by real property used in

forms or schedules. Report both these

income because the nonpassive portion is

an activity of holding real property that is

included in modified adjusted gross

losses and any income from the PTP on

subject to the at-risk rules is treated as an

income for purposes of figuring on Form

the forms and schedules you normally

amount at risk.

use.

8582 the “special allowance” for active

participation in a non-PTP rental real

4. If you have an overall loss and you

Qualified persons. Qualified persons

estate activity. In addition, the nonpassive

disposed of your entire interest in the PTP

include any persons actively and regularly

income is included in investment income

to an unrelated person in a fully taxable

engaged in the business of lending

when figuring your investment interest

transaction during the year, your losses

money, such as a bank or savings and

expense deduction on Form 4952,

(including prior year unallowed losses)

loan association. Qualified persons

Investment Interest Expense Deduction.

allocable to the activity for the year are

generally do not include related parties

-5-

Partner'S Instructions For Schedule K-1 (Form 1065-B) - 2005 Page 5

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