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Investment Interest Expense Deduction,

checked, report the loss following the

nondepreciable personal property used in

for important information on making this

rules for Publicly traded partnerships

a trade or business activity of the

election.

on page 4.

partnership. Report total net short-term

gain or loss on Schedule D (Form 1040),

Other portfolio income. The partnership

Any amount of gain from section 1231

line 5, column (f), and the post-May 5,

uses line 4f to report portfolio income

property held more than 5 years and sold

2003, net short-term gain or loss on

other than interest, ordinary dividend,

or otherwise disposed of before May 6,

Schedule D (Form 1040), line 5, column

royalty, and capital gain (loss) income. It

2003, will be indicated on an attachment

(g). Report the total net long-term gain or

will attach a statement to tell you what

to Schedule K-1. Include this amount in

loss on Schedule D (Form 1040), line 12,

kind of portfolio income is reported on line

your computation of qualified 5-year gain

column (f), and the post-May 5, 2003, net

4f.

only if the amount on your Form 4797,

long-term gain or loss on Schedule D

line 7, is more than zero. Report this

If the partnership has a residual

(Form 1040), line 12, column (g).

amount on line 5 of the Qualified 5-Year

interest in a real estate mortgage

Gain Worksheet in the Schedule D

Any amount of long-term capital gain

investment conduit (REMIC), it will report

(Form 1040) instructions.

from such property held more than 5

on the statement your share of REMIC

years and sold or otherwise disposed of

taxable income (net loss) that you report

Line 7. Other Income (Loss)

before May 6, 2003, will be indicated on

on Schedule E (Form 1040), Part IV,

Amounts on this line are other items of

an attachment to Schedule K-1. Include

column (d). The statement will also report

income, gain, or loss not included on lines

this amount on line 5 of the worksheet for

your share of any “excess inclusion” that

1 through 6. The partnership should give

line 35 of Schedule D (Form 1040).

you report on Schedule E, Part IV,

you a description and the amount of your

Any amount of 28% rate gain or loss

column (c), and your share of section 212

share for each of these items.

expenses that you report on Schedule E,

from collectibles will be indicated on an

Report loss items that are passive

Part IV, column (e). If you itemize your

attachment to Schedule K-1. Include this

activity amounts to you following the

deductions on Schedule A (Form 1040),

amount on line 4 of the worksheet for line

Instructions for Form 8582. However, if

you may also deduct these section 212

20 of Schedule D (Form 1040).

•

the box in Item H is checked, report the

expenses as a miscellaneous deduction

Any net gain or loss from section 1256

loss following the rules for Publicly

subject to the 2% limit on Schedule A, line

contracts. Report this amount on line 1 of

traded partnerships on page 4.

22.

Form 6781, Gains and Losses From

Section 1256 Contracts and Straddles.

Report income or gain items that are

Line 5. Guaranteed Payments to

•

passive activity amounts to you as

Gain from the sale or exchange of

Partners

instructed below. The instructions given

qualified small business stock (as defined

Generally, amounts on this line are not

below tell you where to report line 7 items

in the Instructions for Schedule D) that is

passive income, and you should report

if such items are not passive activity

eligible for the partial section 1202

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

amounts. Line 7 items may include the

exclusion. The partnership should also

column (j) (for example, guaranteed

following:

give you the name of the corporation that

•

payments for personal services).

Partnership gains from the disposition

issued the stock, your share of the

of farm recapture property (see Form

partnership’s adjusted basis and sales

Lines 6a and 6b. Net Section

4797) and other items to which section

price of the stock, and the dates the stock

1231 Gain (Loss) (Other Than

1252 applies.

was bought and sold. Corporate partners

•

Due to Casualty or Theft)

Income from recoveries of tax benefit

are not eligible for the section 1202

items. A tax benefit item is an amount you

If an amount on line 6a or 6b is from a

exclusion. The following additional

deducted in a prior tax year that reduced

rental activity, the section 1231 gain (loss)

limitations apply at the partner level:

your income tax. Report this amount on

is generally a passive activity amount.

1. You must have held an interest in

line 21 of Form 1040 to the extent it

Likewise, if the amount is from a trade or

the partnership when the partnership

reduced your tax.

business activity and you did not

acquired the qualified small business

•

Gambling gains and losses.

materially participate in the activity, the

stock and at all times thereafter until the

section 1231 gain (loss) is a passive

1. If the partnership was not engaged

partnership disposed of the qualified

activity amount.

in the trade or business of gambling, (a)

small business stock.

report gambling winnings on Form 1040,

However, an amount on line 6a or 6b

2. Your distributive share of the

line 21 and (b) deduct gambling losses to

from a rental real estate activity is not

eligible section 1202 gain cannot exceed

the extent of winnings on Schedule A, line

from a passive activity if you were a real

the amount that would have been

27.

estate professional (defined on page 3)

allocated to you based on your interest in

2. If the partnership was engaged in

and you materially participated in the

the partnership at the time the stock was

the trade or business of gambling, (a)

activity.

acquired.

report gambling winnings in Part II of

See the Instructions for Schedule D

If the amount on line 6b is either (a) a

Schedule E and (b) deduct gambling

(Form 1040) for details on how to report

loss that is not from a passive activity or

losses to the extent of winnings in Part II

the gain and the amount of the allowable

(b) a gain, report it on line 2, column (g),

of Schedule E.

exclusion.

•

of Form 4797, Sales of Business

Any income, gain, or loss to the

•

Property. If any portion of the net section

Gain eligible for section 1045 rollover

partnership under section 751(b). Report

1231 gain (loss) was generated after May

(replacement stock purchased by the

this amount on Form 4797, line 10.

•

5, 2003, it will be reported on line 6a.

partnership). The partnership should also

Specially allocated ordinary gain (loss).

Report this amount on line 2, column (h),

give you the name of the corporation that

Report this amount on Form 4797, line

of Form 4797. Do not complete columns

issued the stock, your share of the

10.

•

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

partnership’s adjusted basis and sales

Net gain (loss) from involuntary

“From Schedule K-1 (Form 1065)” across

price of the stock, and the dates the stock

conversions due to casualty or theft. The

these columns.

was bought and sold. Corporate partners

partnership will give you a schedule that

are not eligible for the section 1045

If either of the amounts on lines 6a or

shows the amounts to be entered on

rollover. To qualify for the section 1045

6b is a loss from a passive activity, see

Form 4684, Casualties and Thefts, line

rollover:

Passive loss limitations in the

34, columns (b)(i), (b)(ii), and (c).

•

1. You must have held an interest in

Instructions for Form 4797. You will need

Net short-term capital gain or loss and

the partnership during the entire period in

to report the loss following the

net long-term capital gain or loss from

which the partnership held the qualified

Instructions for Form 8582 to figure how

Schedule D (Form 1065) that is not

much of the loss is allowed on Form

portfolio income. An example is gain or

small business stock (more than 6

4797. However, if the box in Item H is

loss from the disposition of

months prior to the sale) and

-7-

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

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Credits, Deductions, Etc. (For Partner'S Use Only) - 2003 Page 7

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