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must apply them are as follows: the basis

N of Schedule K-1, that information is based

Definitions

rules, the at-risk limitations, and the passive

on the partnership’s books and records and

activity limitations. Each of these limitations

cannot be used to figure your basis.

General Partner

is discussed separately below.

You can figure the adjusted basis of your

A general partner is a partner who is

partnership interest by adding items that

Other limitations may apply to specific

personally liable for partnership debts.

increase your basis and then subtracting

deductions (for example, the section 179

items that decrease your basis.

expense deduction). Generally, specific

Limited Partner

limitations apply before the basis, at-risk,

Use the worksheet below to figure the

A limited partner is a partner in a partnership

and passive loss limitations.

basis of your interest in the partnership.

formed under a state limited partnership law,

For more details on the basis rules, see

Basis Rules

whose personal liability for partnership debts

Pub. 541.

is limited to the amount of money or other

Generally, you may not claim your share of

property that the partner contributed or is

At-Risk Limitations

a partnership loss (including a capital loss)

required to contribute to the partnership.

to the extent that it is greater than the

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

Some members of other entities, such as

adjusted basis of your partnership interest at

deduction from any activity carried on as a

domestic or foreign business trusts or

the end of the partnership’s tax year. Any

trade or business or for the production of

limited liability companies that are classified

losses and deductions not allowed this year

income by the partnership and (b) amounts

as partnerships, may be treated as limited

because of the basis limit can be carried

in the activity for which you are not at risk,

partners for certain purposes. See, for

forward indefinitely and deducted in a later

you will have to complete Form 6198,

example, Temporary Regulations section

year subject to the basis limit for that year.

At-Risk Limitations, to figure your allowable

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

loss.

The partnership is not responsible for

with limited liability as limited partners for

keeping the information needed to figure the

The at-risk rules generally limit the

purposes of section 469(h)(2).

basis of your partnership interest. Although

amount of loss and other deductions that

Nonrecourse Loans

the partnership does provide an analysis of

you can claim to the amount you could

the changes to your capital account in item

actually lose in the activity. These losses

Nonrecourse loans are those liabilities of the

partnership for which no partner bears the

economic risk of loss.

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

(Keep for your records.)

Elections

Generally, the partnership decides how to

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

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

figure taxable income from its operations.

However, certain elections are made by you

Increases:

separately on your income tax return and

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

not by the partnership. These elections are

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

made under the following code sections:

•

Section 59(e) (deduction of certain

3. Your increased share of or assumption of partnership liabilities

qualified expenditures ratably over the

(Subtract your share of liabilities shown in Item M of your 2004

period of time specified in that section). For

Schedule K-1 from your share of liabilities shown in Item M of your

more information, see the instructions for

2005 Schedule K-1 and add the amount of any partnership liabilities

code J in box 13.

you assumed during the tax year) . . . . . . . . . . . . . . . . . . . . . . . .

•

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

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

discharge of indebtedness).

•

income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 263A(d) (preproductive

expenses). See the instructions for code P

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

in box 13.

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

•

Section 617 (deduction and recapture of

6. Your share of the excess of the deductions for depletion (other than oil

certain mining exploration expenditures).

and gas depletion) over the basis of the property subject to depletion

•

Section 901 (foreign tax credit).

Decreases:

If the partnership previously changed its

tax year and you elected to report your

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

distributive share of the income attributable

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

amount of property distributions included in the partner’s income

to that change ratably over 4 tax years, see

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

Rev. Proc. 2003-79, 2003-45 I.R.B. 1036. If

you made the election, you must file Form

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

8082 with your income tax return for each of

adjusted basis of your partnership interest immediately before the

the 4 tax years. File Form 8082 for this

distribution.

purpose in accordance with Rev. Proc.

8. Your share of the partnership’s nondeductible expenses that are not

2003-79 instead of the Form 8082

capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

instructions.

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

Additional Information

losses). However, include your share of the partnership’s section 179

expense deduction for this year even if you cannot deduct all of it

For more information on the treatment of

because of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

partnership income, deductions, credits,

etc., see Pub. 541, Partnerships, and Pub.

10. The amount of your deduction for depletion of any partnership oil and

gas property, not to exceed your allocable share of the adjusted basis

535, Business Expenses.

of that property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.

To get forms and publications, see the

instructions for your tax return or visit the

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

IRS website at

1 through 6 and subtract lines 7 through 10 from the total. If zero or

less, enter -0-.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.

Limitations on Losses,

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

deductions is limited to your adjusted basis in your partnership interest.

Deductions, and Credits

If you entered zero on line 11 and the amount computed for line 11 was

There are three separate potential

less than zero, a portion of your share of the partnership losses and

limitations on the amount of partnership

deductions may not be deductible. (See Basis Rules above for more

information.)

losses that you may deduct on your return.

These limitations and the order in which you

-2-

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

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Deductions, Credits, Etc. (For Partner'S Use Only) - 2005 Page 2

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