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rules, the at-risk limitations, and the passive

on the partnership’s books and records and

Definitions

activity limitations. Each of these limitations

cannot be used to figure your basis.

is discussed separately below.

You can figure the adjusted basis of your

General Partner

partnership interest by adding items that

Other limitations may apply to specific

A general partner is a partner who is

increase your basis and then subtracting

deductions (for example, the section 179

personally liable for partnership debts.

items that decrease your basis.

expense deduction). Generally, specific

limitations apply before the basis, at-risk,

Limited Partner

Use the worksheet below to figure the

and passive loss limitations.

basis of your interest in the partnership.

A limited partner is a partner in a partnership

For more details on the basis rules, see

formed under a state limited partnership law,

Basis Rules

Pub. 541.

whose personal liability for partnership debts

Generally, you may not claim your share of

is limited to the amount of money or other

At-Risk Limitations

a partnership loss (including a capital loss)

property that the partner contributed or is

to the extent that it is greater than the

required to contribute to the partnership.

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

adjusted basis of your partnership interest at

Some members of other entities, such as

deduction from any activity carried on as a

the end of the partnership’s tax year. Any

domestic or foreign business trusts or

trade or business or for the production of

losses and deductions not allowed this year

limited liability companies that are classified

income by the partnership and (b) amounts

because of the basis limit can be carried

as partnerships, may be treated as limited

in the activity for which you are not at risk,

forward indefinitely and deducted in a later

partners for certain purposes. See, for

you will have to complete Form 6198,

year subject to the basis limit for that year.

example, Temporary Regulations section

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

the partnership does provide an analysis of

you can claim to the amount you could

Nonrecourse Loans

the changes to your capital account in item

actually lose in the activity. These losses

Nonrecourse loans are those liabilities of the

N of Schedule K-1, that information is based

and deductions include a loss on 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

Elections

(Keep for your records.)

Generally, the partnership decides how to

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

figure taxable income from its operations.

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

However, certain elections are made by you

separately on your income tax return and

Increases:

not by the partnership. These elections are

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

made under the following code sections:

•

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

Section 59(e) (deduction of certain

qualified expenditures ratably over the

3. Your increased share of or assumption of partnership liabilities

period of time specified in that section). For

(Subtract your share of liabilities shown in Item D of your 2003

more information, see the instructions for

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

code K in box 13 on page 8.

2004 Schedule K-1 and add the amount of any partnership liabilities

•

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

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

discharge of indebtedness).

•

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

Section 263A(d) (preproductive

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

expenses). See the instructions for code O

in box 13.

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

•

Section 617 (deduction and recapture of

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

certain mining exploration expenditures).

•

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

Section 901 (foreign tax credit).

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

If the partnership attaches a statement to

Decreases:

Schedule K-1 indicating that it has changed

its tax year and that you may elect to report

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

your distributive share of the income

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

attributable to that change ratably over 4 tax

amount of property distributions included in the partner’s income

years, see Rev. Proc. 2003-79, 2003-45

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

I.R.B. 1036, for details on making the

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

election. To make the election, you must file

adjusted basis of your partnership interest immediately before the

Form 8082 with your income tax return for

distribution.

each of the 4 tax years. File Form 8082 for

this 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

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

Additional Information

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,

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

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

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

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

instructions for your tax return.

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, and Credits

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

There are three separate potential

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

limitations on the amount of partnership

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

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

losses that you may deduct on your return.

information.)

These limitations and the order in which you

must apply them are as follows: the basis

-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) - 2004 Page 2

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