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IRS.gov Website
Instructions for Schedule E (Form 1040)
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1553

Part II(p8)

rule
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1558

Income or Loss From Partnerships and S Corporations(p8)

rule
If you are a member of a partnership or joint venture or a shareholder in an S corporation, use Part II to report your share of the partnership or S corporation income (even if not received) or loss.
caution
If you elected to be taxed as a qualified joint venture instead of a partnership, follow the reporting rules under Qualified Joint Venture, earlier.
You should receive a Schedule K-1 from the partnership or S corporation. You also should receive a copy of the Partner's or Shareholder's Instructions for Schedule K-1. Your copy of Schedule K-1 and its instructions will tell you where on your return to report your share of the items. If you did not receive these instructions with your Schedule K-1, see the instructions for Form 1040 or Form 1040NR for how to get tax forms, instructions, and publications. Do not attach Schedules K-1 to your return. Keep them for your records.
If you are treating items on your tax return differently from the way the partnership (other than an electing large partnership) or S corporation reported them on its return, you may have to file Form 8082. If you are a partner in an electing large partnership, you must report the items shown on Schedule K-1 (Form 1065-B) on your tax return the same way the partnership reported the items on Schedule K-1.
taxmap/instr/i1040se-004.htm#en_us_publink100058819

Special Rules That Limit Losses(p8)

rule
If you report a loss from a partnership or S corporation, your loss may be reduced or not allowed this year. Apply the basis rules, at-risk rules, and passive activity loss rules to your loss on Schedule E. If your loss also is subject to the excess business loss rules, you figure that limitation separately on Form 461. Any reduction to your loss due to the excess business loss rules will not be reflected on your Schedule E.
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Basis rules for partnerships. (p8)
rule
Generally, you may not claim your share of a partnership loss (including a capital loss) to the extent that it is greater than the adjusted basis of your partnership interest at the end of the partnership's tax year. Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year. To figure the basis of your interest in a partnership, you can use the Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership in the Partner's Instructions for Schedule K-1 (Form 1065). For more details on the basis rules for partnerships, see Pub. 541.
If you had a loss from a partnership that was not allowed last year because of the basis rules, but all or part is allowed this year, see Line 27, later, for how to report it.
After applying the basis rules, the loss you report on Schedule E may be further reduced by the at-risk rules and passive activity loss rules.
taxmap/instr/i1040se-004.htm#en_us_publink100058822
Basis rules for S corporations. (p9)
rule
Generally, the deduction for your share of aggregate losses and deductions reported on Schedule K-1 (Form 1120S) is limited to the basis of your stock (determined with regard to distributions received during the tax year) and loans from you to the corporation. The basis of your stock is generally figured at the end of the corporation's tax year. Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year. To figure your aggregated stock basis, you generally can use the Worksheet for Figuring a Shareholder's Stock and Debt Basis in the Shareholder's Instructions for Schedule K-1 (Form 1120S). For more details on the basis rules for S corporations, see the Shareholder's Instructions for Schedule K-1 (Form 1120S).
If you are claiming a deduction for your share of an aggregate loss, check the box on the appropriate line in Part II, column (e), and attach to your return a computation of the adjusted basis of your corporate stock and of any debt the corporation owes you. For details, see the Shareholder's Instructions for Schedule K-1 (Form 1120S).
If you had a loss from an S corporation that was not allowed last year because of the basis rules, but all or part is allowed this year, see Line 27, later, for how to report it.
After applying the basis rules, the loss you report on Schedule E may be further reduced by the at-risk rules and passive activity loss rules.
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At-risk rules.(p9)
rule
If you have (a) a loss or other deduction from any activity carried on as a trade or business or for the production of income by the partnership or S corporation, and (b) amounts in the activity for which you are not at risk, your loss may be limited. For more information, see At-Risk Rules, earlier.
If you are subject to the at-risk rules for any activity, check the box on the appropriate line in Part II, column (f) of Schedule E, and use Form 6198 to figure the amount of any deductible loss. If the activity is nonpassive, enter any deductible loss from Form 6198 on the appropriate line in Part II, column (i) of Schedule E.
If you had a loss from the partnership or S corporation that was not allowed last year because of the at-risk rules, but all or part is allowed this year, see Line 27, later, for how to report it.
After applying the at-risk rules, the loss you report on Schedule E may be further reduced by the passive activity loss rules.
taxmap/instr/i1040se-004.htm#en_us_publink100058831
Passive activity loss rules.(p9)
rule
For more information about passive activity losses, see Passive Activity Loss Rules, earlier.
If you have a passive activity loss, in most cases you need to complete Form 8582 to figure the amount of the loss to enter in Part II, column (g), for that activity. But if you are a general partner or an S corporation shareholder reporting your share of a partnership or an S corporation loss from a rental real estate activity and you meet all of the conditions listed earlier under Exception for Certain Rental Real Estate Activities, you do not have to complete Form 8582. Instead, enter your loss in Part II, column (g).
If you have passive activity income, complete Part II, column (h), for that activity. If you have nonpassive income or losses, complete Part II, columns (i) through (k), as appropriate.
If you had a loss from the partnership or S corporation that was not allowed last year because of the passive activity loss rules, but all or part is allowed this year, see Line 27, later, for how to report it.
taxmap/instr/i1040se-004.htm#en_us_publink1000618
Excess business loss rules.(p9)
rule
If you report a loss on Schedule E from a partnership or S corporation engaged in a trade or business, use Form 461 to figure your excess business loss. Your excess business loss will not be reflected on your Schedule E; instead, it will be added to your income on Form 1040 and carried forward to a subsequent year as a net operating loss.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1655

Domestic Partnerships(p9)

rule
See the Schedule K-1 instructions before entering on your return other partnership items from a passive activity or income or loss from any publicly traded partnership.
You can deduct unreimbursed ordinary and necessary expenses you paid on behalf of the partnership if you were required to pay these expenses under the partnership agreement. See Line 27, later, for how to report these expenses.
If you used loan proceeds to buy an interest in, or make a contribution to the capital of, a partnership (debt-financed acquisition), report your share of deductible partnership interest expense on either Schedule A or Schedule E, depending on the type of asset (or expenditure if the allocation is based on the tracing of loan proceeds) to which the interest expense is allocated. See Line 28 for more information about reporting these interest expenses.
If you claimed a credit for federal tax on gasoline or other fuels on your 2017 Form 1040 or Form 1040NR based on information received from the partnership, enter as income in column (h) or column (k), whichever applies, the amount of the credit claimed for 2017.
Part or all of your share of partnership income or loss from the operation of the business may be considered net earnings from self-employment that must be reported on Schedule SE. Enter the amount from Schedule K-1 (Form 1065), box 14, code A (or from Schedule K-1 (Form 1065-B), box 9 (code J1)), on Schedule SE, after you reduce this amount by any allowable expenses attributable to that income.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1697

Foreign Partnerships(p10)

rule
Follow the instructions below in addition to the instructions earlier for Domestic Partnerships.
If you are a U.S. person, you may have received Forms 1099-B, 1099-DIV, and 1099-INT reporting your share of certain partnership income, because payors of income to the foreign partnership in most cases are required to allocate and report payments of that income directly to each of the partners of the foreign partnership. If you received both Schedule K-1 and Form 1099 for the same type and source of partnership income, report only the income shown on Schedule K-1 in accordance with its instructions.
If you are not a U.S. person, you may have received Forms 1042-S reporting your share of certain partnership income, because payors of income to the foreign partnership in most cases are required to allocate and report payments of that income directly to each of the partners of the foreign partnership. If you received both Schedule K-1 and Form 1042-S for the same type and source of partnership income, report the income on your return as follows.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1749
Requirement to file Form 8865.(p10)
rule
If you are a U.S. person, you may have to file Form 8865 if any of the following applies.
  1. You controlled a foreign partnership (that is, you owned more than a 50% direct or indirect interest in the partnership).
  2. You owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership.
  3. You had an acquisition, disposition, or change in proportional interest of a foreign partnership that:
    1. Increased your direct interest to at least 10% or reduced your direct interest of at least 10% to less than 10%, or
    2. Changed your direct interest by at least a 10% interest.
  4. You contributed property to a foreign partnership in exchange for a partnership interest if:
    1. Immediately after the contribution, you owned, directly or indirectly, at least a 10% interest in the partnership, or
    2. The value of the property you contributed, when added to the value of any other property you or any related person contributed to the partnership during the 12-month period ending on the date of transfer, exceeds $100,000.
Also, you may have to file Form 8865 if you contributed property with built-in gain to a foreign partnership (or certain domestic partnerships) or to report certain dispositions by a foreign partnership of property you previously contributed to that partnership if you were a partner at the time of the disposition.
For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1812

S Corporations(p10)

rule
Distributions of prior year accumulated earnings and profits of S corporations are dividends and are reported on Form 1040, line 3b.
If you used loan proceeds to buy an interest in, or make a contribution to the capital of, an S corporation (debt-financed acquisition), report your share of deductible S corporation interest expense on either Schedule A or Schedule E, depending on the type of asset (or expenditure if the allocation is based on the tracing of loan proceeds) to which the interest expense is allocated. See Line 28 for more information about reporting these interest expenses.
Your share of the net income of an S corporation is not subject to self-employment tax.
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Line 27(p10)

rule
If you answered Yes on line 27, follow the instructions below. If you do not follow these instructions, the IRS may send you a notice of additional tax due because the amounts reported by the partnership or S corporation on Schedule K-1 do not match the amounts you reported on your tax return.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1875

Losses Not Allowed in Prior Years Due to the Basis, Excess Farm Loss, or At-Risk Rules(p10)

rule
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1901

Prior Year Unallowed Losses From a Passive Activity Not Reported on Form 8582(p10)

rule
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1927

Unreimbursed Partnership Expenses(p10)

rule
You can deduct unreimbursed ordinary and necessary partnership expenses you paid on behalf of the partnership on Schedule E if you were required to pay these expenses under the partnership agreement. You only can deduct unreimbursed expenses on Schedule E that are trade or business expenses under section 162. Don't report unreimbursed partnership expenses separately if the expenses are from a passive activity and you are required to file Form 8582; otherwise, do the following.
taxmap/instr/i1040se-004.htm#en_us_publink24332td0e1965

Line 28(p11)

rule
For nonpassive income or loss and passive income or losses for which you are not filing Form 8582, enter in the applicable column of line 28 your current year ordinary income or loss (after applying any special rules that limit losses) from the partnership or S corporation. Report each related item required to be reported on Schedule E (including items of income or loss stated separately on Schedule K-1) in the applicable column of a separate line following the line on which you reported the current year ordinary income or loss. Also, enter a description of the related item (for example, depletion) in column (a) of the same line.
If you are required to file Form 8582, see the Instructions for Form 8582 before completing Schedule E.
taxmap/instr/i1040se-004.htm#en_us_publink100045005
Debt-financed acquisition. (p11)
rule
A debt-financed acquisition is the use of loan proceeds to buy an interest in, or to make a contribution to the capital of, a partnership or S corporation. You must allocate the loan proceeds and the related interest expense among all the assets of the entity. You can use any reasonable method.
For interest allocated to trade or business assets (or expenditures), report the interest on a separate line of your Schedule E, Part II. Put "business interest" and the name of the partnership or S corporation in column (a) and the amount in column (i).
For interest allocated to passive activity use, enter the interest on Form 8582 as a deduction from the passive activity of the partnership or S corporation. Show any deductible amount on a separate line on your Schedule E, Part II. Put "passive interest" and the name of the entity in column (a) and the amount in column (g).
For interest allocated to investment use, enter the interest on Form 4952. Carry any deductible amount allocated to royalties to a separate line of your Schedule E, Part II. Put "investment interest" and the name of the entity in column (a) and the amount in column (i). Carry the balance of the deductible amount to Schedule A, line 8.
Any interest allocated to proceeds used for personal purposes is generally not deductible.
For more information on allocating and reporting these interest expenses, see Notice 88-37 in Cumulative Bulletin 1988-1. Also, see Notice 89-35 in Cumulative Bulletin 1989-1.