This article focuses solely on the entry of the Tax Exempt Income, Non-Deductible Expenses, Distributions and Other Information. Learn more.
These items are found on Box 18, Box 19 and Box 20 of the Schedule K-1 (Form 1065) Partner’s Share of Income, Deductions, Credits, etc. For additional information regarding the requirements for Schedule K-1 (Form 1065), see: Partner’s Instructions for Schedule K-1 (Form 1065).
To enter the Tax Exempt, Non-Deductible Expenses, Distributions and Other Information Items from a K-1 (Form 1065) in Keystone Tax Solutions Pro from the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- K-1 Input – Select ‘New’ and double-click on Form 1065 K-1 Partnership which will take you to the K-1 Heading Information Entry Menu. If the initial K-1 entry was previously keyed in, double click on the entry in the K-1 pick list.
After entering all of the information required on the K-1 Heading Information screen, select ‘OK’. The K-1 1065 Edit Screen has two distinct sections entitled ‘Heading Information’ and ‘Income, Deductions, Credits, and Other Items.’
The K-1 1065 Edit Screen in Keystone Tax Solutions Pro has an entry for each box on found on the Schedule K-1 (Form 1065) that the taxpayer received. A description of the Tax Exempt Income and Non-Deductible Expenses contained in Box 18, the Distribution items contained in Box 19 and the Other Information contained in Box 20 can be found below. The amounts shown in Box 18, Box 19 and Box 20 reflect only the taxpayer’s share of the transaction from the partnership.
Tax Exempt Income and Nondeductible Items
Line 18A – Tax-Exempt Interest Income – This amount represents the taxpayer’s share of tax-exempt interest. This amount will automatically pull to Form 1040, line 2a.
Line 18B – Other Tax-Exempt Income – This amount represents the taxpayer’s other tax-exempt income. This amount is not reported on Form 1040. Instead the taxpayer should increase their adjusted basis in the partnership by this amount. The partnership should provide the taxpayer with a statement describing the nature of the tax exempt income and the reason for treating it as tax exempt.
Line 18C – Non Deductible Expenses – This amount represents the taxpayer’s non-deductible expenses incurred by the partnership. This amount is not reported on Form 1040. Instead, the taxpayer should decrease their adjusted basis in the partnership by this amount.
Distributions
Line 19A – Cash & Marketable Securities – The amount reported in Box 19, Code A is the cash and marketable securities distributed in kind to the taxpayer by the partnership. These items reduce the basis that the taxpayer has in the partnership and no items contained in this field will flow to Form 1040.
Line 19B – Distributions subject to section 737 – The amount reported in Box 19, Code B is Section 737 property which is property that was contributed to the partnership by another partner and in addition to a basis reduction there may be a requirement to recognize a gain on any distribution of property designated as section 737 property. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 19C – Other Property – Amounts reported in Box 19, Code C include any property distributed to the taxpayer that is not cash, marketable securities or property that was contributed to the partnership by another partner. These items reduce the basis that the taxpayer has in the partnership and no items contained in this field will flow to Form 1040. See the partner’s instructions provided by the partnership for further information on the type of property distributed and the treatment that these items will receive.
Other Information
Line 20A – Investment Income – The amount reported in Box 20, Code A is the taxpayer’s share of investment income (interest, dividends, etc.) from the partnership. This income should have been recognized elsewhere on this K-1 in the Income items. The amount in Box 20, code A is provided for informational reasons only. No amount entered in this field will flow to Form 4952 or to Form 1040, Schedule B. However, the amounts entered elsewhere for interest, dividends, etc., will flow to Form 4952.
Line 20B – Investment Expense – The amount reported in Box 20, Code B may need to be reported on Form 4952, Line 5. No amount entered in this field will automatically flow to the Form 4952. To access Form 4952, Line 5 from the Main Menu of Keystone Tax Solutions Pro select Itemized Deductions Menu, Interest You Paid, Investment Interest (4952), Amount of Investment Expenses.
Line 20C – Fuel tax credit information– Amounts reported in Box 20, Code C may need to be reported on Form 4136. No amount entered in this field will flow to the Form 4136. To access Form 4136, from the Main Menu of Keystone Tax Solutions Pro select Payments, Estimates & EIC, Federal Tax Paid on Fuels Credit. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20D – Qualified Rehabilitation Expenditures (other than rental real estate) – The partnership will report the taxpayer’s share of qualified rehabilitation expenditures and other information needed to complete Form 3468 for property not related to rental real estate activities in Box 20, Code D. The taxpayer’s share of qualified rehabilitation expenditures related to rental real estate activities is reported in Box 15, Code E. See: Instructions for Form 3468. If the partnership is reporting expenditures from more than one activity, the partnership should provide a statement that will separately identify the expenditure. No amount entered in this field will flow to the Form 3468. Form 3468 can be accessed from the Main Menu of Keystone Tax Solutions Pro by selecting, Credits Menu, General Business Credit (3800), Current Year Business Credits, Form (3468).
Line 20E – Basis of Energy Property – The amount reported in Box 20, Code E may be needed to calculate the Investment Credit available on Form 3468. See: Instructions for Form 3468. No amount entered in this field will flow to the Form 3468. Form 3468 can be accessed from the Main Menu of Keystone Tax Solutions Pro by selecting, Credits, General Business Credit (3800), Current Year Business Credits, Form 3468.
Line 20F – Recapture of Low-Income Housing Credit (section 42(j)(5)) – Amounts reported in Box 20, Code F represent the Low-Income Housing Credit recapture amount due to a disposition or basis change, typically for a partnership that has more than 35 partners, and this amount may be reported on Form 8611. No amount entered in this field will flow to the Form 8611. Form 8611 can be accessed from the Main Menu of Keystone Tax Solutions Pro by selecting, Other Taxes Menu, Other Taxes, Recapture of Low-Income Housing Credit – 8611. See: Instructions for Form 8611.
Line 20G – Recapture of Low Income Housing Credit (other) – Amounts reported in Box 20, Code G represent the Low-Income Housing Credit recapture amount due to a disposition or basis change typically for a partnership that has less than 35 partners and this amount may be reported on Form 8611. No amount entered in this field will flow to the Form 8611. Form 8611 can be accessed from the Main Menu of Keystone Tax Solutions Pro by selecting, Other Taxes Menu, Other Taxes, Recapture of Low-Income Housing Credit – 8611. See: Instructions for Form 8611.
Line 20H – Recapture of investment credit – The amount reported in Box 20, Code H may need to be reported on Form 4255. No amount entered in this field will flow to the Form 4255. To access Form 4255, from the Main Menu of Keystone Tax Solutions Pro select Other Taxes Menu, Other Taxes, Recapture of Investment Credit – 4255. See: Instructions for Form 4255.
Line 20I – Recapture of other credits – The amount reported in Box 20, Code I represents the recapture of other business credits that may need to be reported on Form 1040. No amount entered in this field will automatically flow to the Form 1040. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20J – Look back interest – completed long-term contracts – Amounts reported in Box 20, Code J are reported on Form 8697. No amount entered in this field will flow to the Form 8697 and the tax program does not currently support Form 8697. However, if additional tax is due, Form 8697 can be attached to the tax return as a PDF file. See: Form 8697; The appropriate entry can be made in Keystone Tax Solutions Pro on the Other Taxes line of the Form 1040. See: Instructions for Form 8697. To enter any additional tax from Form 8697 on Form 1040, from the Main Menu of Keystone Tax Solutions Pro select, Other Taxes Menu, Other Taxes, Interest Computed Under the Look Back Method.
If after the completion of Form 8697 a refund is due to the taxpayer, Form 8697 is NOT filed with Form 1040. Instead, the taxpayer must file Form 8697 separately with the IRS consistent with the Instructions for Form 8697.
Line 20K – Look back interest – income forecast method – Amounts reported in Box 20, Code K are reported on Form 8866. No amount entered in this field will flow to the Form 8866 and Keystone Tax Solutions Pro does not currently support Form 8866. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20L – Disposition of property with section 179 deductions – Amounts reported in Box 20, Code L may need to be reported on Form 4797. No amount entered in this field will flow to the Form 4797. Form 4797 can be accessed from the Main Menu of Keystone Tax Solutions Pro by selecting Income Menu, Other Gains/Loss (4797, 8824), Form 4797. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20M – Recapture of Section 179 deduction – The amount reported in Box 20, Code M is the taxpayer’s share of any recapture of section 179 expense deduction if the business use of the property dropped to 50% or less. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20N – Interest expense for corporate partners. – Amounts reported in Box 20, Code N are not reported on Form 1040. This amount is reported elsewhere on the Schedule K-1 and the total amount is reported here for information only.
Line 20O – Section 453(l)(3) Information. – The amount reported in Box 20, Code O is the taxpayer’s share of taxes as a result of the sale of certain class of assets (residential lots and timeshares) on an installment basis. This is reported on Form 1040, Line 62 with box c checked and “453(l)(3)” and the amount entered to the left of line 62. To enter this tax on Form 1040, from the Main Menu of Keystone Tax Solutions Pro select, Other Taxes Menu, Other Taxes, Other Taxes #1, 453(I)(3) – Interest on Tax Due on Certain Installment Income.
Line 20P – Section 453(A)(c) Information. – The amount reported in Box 20, Code P is the taxpayer’s share of taxes as a result of the gain on sale of certain assets (property with a sales price over $150,000) on an installment basis. This is reported on Form 1040, Line 62 with box c checked and “453(A)(c)” and the amount of the tax entered to the left of line 62. To enter this tax on Form 1040, from the Main Menu of Keystone Tax Solutions Pro select, Other Taxes Menu, Other Taxes, Other Taxes #1, then 453(A)(c) – Interest on Tax Due on Deferred Tax on Certain Installment Sales Gain.
Line 20Q – Section 1260(b) Information. – The amount reported in Box 20, Code Q is the taxpayer’s share of taxes as a result of the gain on the sale of assets on an installment basis. This is reported on Form 1040, Line 62 with box c checked and “1260(B)” and the amount of the tax entered to the left of line 62. To enter this tax on Form 1040, from the Main Menu of Keystone Tax Solutions Pro select Other Taxes Menu, Other Taxes, Other Taxes #1, 1260(B) – Interest Charged on Deferral of Gain.
Line 20R – Interest Allocable to Production Expenditures. – The amount reported in Box 20, Code R is the information that the taxpayer needs to capitalize any interest related to production expenditures under Section 263A. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20S – CCF Nonqualified Withdrawals. – The amount reported in Box 20, Code S is the taxpayer’s share of nonqualified withdrawals from a capital construction fund (CCF). These withdrawals are taxed separately from the taxpayer’s other gross income at the highest marginal ordinary income or capital gains tax rate. The taxpayer is required to attach a statement to Form 1040 to show the computation of both the tax and interest for a nonqualified withdrawal. This tax and any interest is to be included on Form 1040, Schedule 4, line 62. In the space to the left of line 62, enter the amount of tax and interest and “CCF.” At this time, the tax program does not currently support this calculation or entry.
Line 20T – Depletion Information – Oil & Gas. – Amounts reported in Box 20, Code T is information the taxpayer needs to figure their share of any depletion deduction. See: Publication 535 – Business Expenses.
Line 20U – Has been reserved by the Internal Revenue Service and is not currently in use. No entry should be made in this field for tax years commencing with 2014. Line 20, Code U was used prior to 2014 to report the taxpayer’s share of Amortization of Reforestation Cost.
Line 20V – Unrelated Business Taxable Income. – The amount reported in Box 20, Code V is the information that is provided to tax-exempt organizations. This section is not applicable to Form 1040.
Line 20W – Pre contribution gain (loss). – The amounts reported in Box 20, Code W is information regarding any property that was distributed to a partner, other than the original contributing partner. In this event, the contributing partner (taxpayer) must recognize any gain or loss on Form 8949/Schedule D or Form 4797 in accordance with information provided by the partnership. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20X – Section 108(I) Information. – If the partnership made a section 108(I) election, it will provide the taxpayer with a statement identifying the taxpayer’s share of affected items. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive.
Line 20Y- Net Investment Income. – Amounts reported in Box 20, Code Y is the information that is provided to the taxpayer to determine their net investment income tax under section 1411. See the partner’s instructions provided by the partnership for further information on the treatment that these items will receive and the Instructions for Form 8960 – Net Investment Income Tax.
Line 20Z – Section 199 Information – Amounts reported in Box 20, Code Z is the information needed by a partner/taxpayer to claim the Qualified Business Income Deduction. The information reported may consist of some or all of the following items. In 2018 these iterms were reported separately in Box 20 with unique codes ranging from Box 20, Code Z through Box 20, Code AD:
Section 199A income –This is the ‘Qualified Business Income” which is generally defined as income that is related to the partnership’s business activities and it does not include investment income or guaranteed payments to partners for services rendered to the partnership. The amount entered will automatically pull to the applicable Qualified Business Income Deduction (‘QBID’) form (Form 8995 or Form 8995-A) under the Tax Computation Menu and used to calculate any QBID.
Section 199A W-2 Wages – are the wages paid by the partnership that were reported to the Social Security Administration on a W-2. The amount entered as W-2 Wages does not carry to Form 8995 – Qualified Business Income Deduction Simplified Computation because W-2 Wages are not used to calculate the QBID for taxpayers that are permitted to use Form 8995 because the taxpayer’s income is below certain thresholds. This amount will automatically pull to Form 8995-A – Qualified Business Income Deduction under the Tax Computation Menu and is used in the calculation of the QBID for taxpayers above the taxable income thresholds.
Section 199A unadjusted basis – This is the unadjusted basis of qualified property held by the partnership. Qualified property is generally defined as the original cost of assets that were placed in service by the partnership in the past ten years and still used by the partnership and the original cost of assets still being depreciated by the partnership because the recovery period is greater than ten years. The amount entered as unadjusted basis of Qualified Property does not carry to Form 8995 – Qualified Business Income Deduction Simplified Computation because it is not used on that worksheet to calculate the QBID for taxpayers that are permitted to use Form 8995. This amount will automatically pull to Form 8995-A – Qualified Business Income Deduction under the Tax Computation Menu and is used in the calculation of the QBID for taxpayers above the taxable income thresholds.
Section 199A REIT dividends – This is the REIT dividends received by the partnership. This amount will automatically pull to the applicable Qualified Business Income Deduction form under the Tax Computation Menu and is used in the calculation of the QBID.
Section 199A PTP income – This is the Publicly Traded Partnership income reported by the partnership. This amount will automatically pull to the applicable Qualified Business Income Deduction form under the Tax Computation Menu and is used in the calculation of the QBID.
Line 20AA – Section 704(c) information – Amounts reported in Box 20, Code AA is informational. It represents the net income or loss effect that a partner who has contributed property with a built-in gain or loss bears. This amount is not pulled to the tax return, and for additional information see the partner’s instructions.
Line 20AB –Section 751 gain (loss) – Amounts reported in Box 20, Code AB represents the partner’s share of gain or loss on the sale of the partnership interest that is subject to being taxed at ordinary income rates and not capital gain rates. This amount is not automatically pulled to the tax return, and for additional information see the partner’s instructions.
Line 20AC – Section 1(h)(5) gain (loss) – Amounts reported in Box 20, Code AC represents the partner’s share of gain or loss on the sale of the partnership interest that is subject to being taxed at the rate for collectible assets. This amount is not automatically pulled to the tax return, and for additional information see the partner’s instructions.
Line 20AD – Deemed section 1250 unrecaptured gain -Amounts reported in Box 20, Code AD represents the partner’s share of gain or loss on the sale of the partnership interest that is subject to being taxed at the rate for unrecaptured section 1250 gain. This amount is not automatically pulled to the tax return, and for additional information see the partner’s instructions.
Line 20AE – Excess taxable income – Amounts reported in Box 20, Code AE is the excess taxable income determined by the partnership for the purpose of the limitation placed on the partnership’s ability to deduct business interest. See Form 8990, Limitation on Business Interest Expense Under Section 163(j).
Line 20AF – Excess business interest – Amounts reported in Box 20, Code AF represent the business interest that was subject to a business interest limitation at the partnership level.
Line 20AG – Gross receipts for section 59A(e) – Amounts reported in Box 20, Code AG represent the partner’s share of gross receipts under section 59A which is used to determine the tax on base erosion payments for corporate taxpayers. This tax is calculated by corporations on Form 8991 and reported on Form 1120, Schedule J.
Line 20AH – Other Information – Box 20, Code ‘AH’ are other items of information not found elsewhere on the Schedule K-1 (Form 1065) Partner’s Share of Income, Deductions, Credits, etc. The taxpayer should receive instructions from the partnership needed to address the items contained in this box.
NOTE: This is a guide on entering the Tax Exempt Income, Non-Deductible Expenses, Distributions and Other items from Schedule K-1 (Form 1065) into the tax program.
Additional Resources:
Partner’s Instructions for Schedule K-1 (Form 1065)
Schedule K-1 (Form 1065) – Overview
Schedule K-1 (Form 1065) – Heading Information
Schedule K-1 (Form 1065) – Income (Loss) Items
Schedule K-1 (Form 1065) – Deductions
Schedule K-1 (Form 1065) – Self-Employment Earnings (Loss)
Schedule K-1 (Form 1065) – Credits & Foreign Transaction Items
Schedule K-1 (Form 1065) – Alternative Minimum Tax (AMT) Items