Shareholder'S Instructions For Schedule K-1 (Form 1120s)

Lines 4a Through 4f — Portfolio Income

completed Item C. If you claim or report any

situation below and report your line 1 income

income, loss, deduction, or credit from a tax

(loss) as instructed after applying the basis and

(Loss)

shelter, you are required to attach Form 8271,

at-risk limitations on losses.

Portfolio income or loss is not subject to the

Investor Reporting of Tax Shelter Registration

1. Report line 1 income (loss) from trade or

passive activity limitations. Portfolio income

Number, to your tax return. If the corporation

business activities in which you materially

includes income not derived in the ordinary

has invested in a tax shelter, it must give you a

participated on Schedule E (Form 1040), Part

course of a trade or business from interest,

copy of its Form 8271 with your Schedule K-1.

II, column (h) or (j).

ordinary dividends, annuities, or royalties, and

Use this information to complete your Form

2. Report line 1 income (loss) from trade or

gain or loss on the sale of property that

8271.

produces such income or is held for

business activities in which you did not

If the corporation itself is a

materially participate, as follows:

investment.

registration-required tax shelter, use the

a. If income is reported on line 1, report the

Column (c) of Schedule K-1 tells

information on Schedule K-1 (name of

income on Schedule E, Part II, column (g).

shareholders where to report this income on

corporation, corporation identifying number,

Form 1040 and related schedules.

b. If a loss is reported on line 1, follow the

and tax shelter registration number) to

Instructions for Form 8582 to determine how

Qualified dividends. Report any qualified

complete your Form 8271.

much of the loss can be reported on Schedule

dividends on line 9b of Form 1040.

E, Part II, column (f).

Lines 1 Through 23

Note: Qualified dividends are excluded from

investment income, but you may elect to

The amounts on lines 1 through 23 show your

Line 2 — Net Income (Loss) From

include part or all of these amounts in

share of ordinary income, loss, deductions,

investment income. See the instructions for line

Rental Real Estate Activities

credits, and other information from all

4g of Form 4952, Investment Interest Expense

corporate activities. These amounts do not

Generally, the income (loss) reported on line 2

Deduction, for important information on making

take into account limitations on losses, credits,

is a passive activity amount for all

this election.

or other items that may have to be adjusted

shareholders. However, the income (loss) on

because of:

Line 4f of Schedule K-1 is used to report

line 2 is not from a passive activity if you were

income other than that reported on lines 4a

a real estate professional (defined on page 2)

1. The adjusted basis of your stock and

through 4e. The type and the amount of

and you materially participated in the activity.

debt in the corporation,

income reported on line 4f will be listed in the

2. The at-risk limitations,

If you are filing a 2003 Form 1040, use the

line 23 Supplemental Information space of

3. The passive activity limitations, or

following instructions to determine where to

Schedule K-1.

4. Any other limitations that must be taken

enter a line 2 amount:

into account at the shareholder level in figuring

If the corporation held a residual interest in

1. If you have a loss from a passive activity

taxable income (e.g., the section 179 expense

a real estate mortgage investment conduit

on line 2 and you meet all of the following

limitation).

(REMIC), it will report on line 4f your share of

conditions, enter the loss on Schedule E (Form

REMIC taxable income or (net loss) that you

For information on the limitations of 1, 2,

1040), Part II, column (f):

report on Schedule E (Form 1040), Part IV,

and 3, see Limitations on Losses,

a. You actively participated in the

column (d). It will also report your share of any

Deductions, and Credits beginning on page

corporate rental real estate activities. (See

“excess inclusion” that you report on Schedule

1. The limitations for 4 are discussed

Special allowance for a rental real estate

E, Part IV, column (c), and your share of

throughout these instructions and in other

activityon page 3.)

section 212 expenses that you report on

referenced forms and instructions.

Schedule E, Part IV, column (e). If you itemize

b. Rental real estate activities with active

If you are an individual, and your pro rata

your deductions on Schedule A (Form 1040),

participation were your only passive activities.

share items are not affected by any of the

you may also deduct these section 212

c. You have no prior year unallowed

limitations, report the amounts shown in

expenses as a miscellaneous itemized

losses from these activities.

column (b) of Schedule K-1 as indicated in

deduction subject to the 2% limit on Schedule

d. Your total loss from the rental real

column (c). If any of the limitations apply,

A, line 22.

estate activities was not more than $25,000

adjust the column (b) amounts for the

Lines 5a and 5b — Net Section 1231

(not more than $12,500 if married filing

limitations before you enter the amounts on

separately and you lived apart from your

Gain (Loss) (Other Than Due to

your return. When applicable, the passive

spouse all year).

Casualty or Theft)

activity limitations on losses are applied after

the limitations on losses for a shareholder’s

e. If you are a married person filing

The amount on line 5a or 5b is generally a

separately, you lived apart from your spouse all

basis in stock and debt and the shareholder’s

passive activity amount if it is from a:

•

year.

at-risk amount.

Rental activity or

•

f. You have no current or prior year

Trade or business activity in which you did

Note: The line number references in column

unallowed credits from a passive activity.

not materially participate.

However, an amount on line 5a or 5b from

in 2003. If you are a calendar year shareholder

g. Your modified adjusted gross income

a rental real estate activity is not from a

was not more than $100,000 (not more than

in a fiscal year 2003 – 2004 corporation, enter

passive activity if you were a real estate

these amounts on the corresponding lines of

$50,000 if married filing separately and you

professional (defined on page 2) and you

lived apart from your spouse all year).

the tax form in use for 2004.

materially participated in the activity.

2. If you have a loss from a passive activity

If you have losses, deductions, credits,

on line 2 and you do not meet all of the

If the amount on line 5b is either (a) a loss

etc., from a prior year that were not

conditions in 1 above, follow the Instructions

that is not from a passive activity or (b) a gain,

deductible or usable because of certain

CAUTION

for Form 8582 to determine how much of the

report it on Form 4797, line 2, column (g). If

limitations, such as the basis rules or the

loss can be reported on Schedule E (Form

any portion of the net section 1231 gain (loss)

at-risk limitations, take them into account in

1040), Part II, column (f).

was generated after May 5, 2003, it will be

determining your income, loss, etc., for this

reported on line 5a. Report this amount on line

3. If you were a real estate professional

year. However, except for passive activity

2, column (h), of Form 4797. Do not complete

and you materially participated in the activity,

losses and credits, do not combine the

columns (b) through (f) on line 2. Instead, write

report line 2 income (loss) on Schedule E, Part

prior-year amounts with any amounts shown

“From Schedule K-1 (Form 1120S)” across

II, column (h) or (j).

on this Schedule K-1 to get a net figure to

these columns.

report on your return. Instead, report the

4. If you have income from a passive

If the amount on line 5a or 5b is a loss from

amounts on your return on a year-by-year

activity on line 2, enter the income on Schedule

a passive activity, see Passive Loss

E, Part II, column (g).

basis.

Limitations in the Instructions for Form 4797.

Income

You will need to report the loss following the

Line 3 — Net Income (Loss) From Other

Instructions for Form 8582 to determine the

Rental Activities

Line 1 — Ordinary Income (Loss) From

amount to enter on Form 4797.

The amount on line 3 is a passive activity

Trade or Business Activities

Any amount of gain from section 1231

amount for all shareholders. Report the income

The amount reported on line 1 is your share of

property held more than 5 years prior to May 6,

or loss as follows:

the ordinary income (loss) from trade or

2003, will be indicated on an attachment to

1. If line 3 is a loss, report the loss using

business activities of the corporation.

Schedule K-1. Include this amount in your

the Instructions for Form 8582.

Generally, where you report this amount on

computation of qualified 5-year gain only if the

Form 1040 depends on whether the amount is

2. If income is reported on line 3, report the

amount on line 7 of your Form 4797, Sales of

from an activity that is a passive activity to you.

income on Schedule E (Form 1040), Part II,

Business Property, is more than zero. The

If you are an individual shareholder, find your

column (h).

corporation will also identify in the line 23

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Instructions for Schedule K-1 (Form 1120S)

Shareholder'S Instructions For Schedule K-1 (Form 1120s) - 2003 Page 4

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