IRS Form 1065 Schedule K-1: 2025 Instructions, Filing Requirements & How to Report on Your Tax Return

IRS Form 1065 Schedule K-1 – Partnerships, multi-member LLCs taxed as partnerships, and other pass-through entities use IRS Form 1065 to report income, deductions, credits, and other items. They issue Schedule K-1 (Form 1065) to each partner to show their distributive share. Partners then report these amounts on their individual tax returns (Form 1040 or similar), even if no cash distributions occur.

This guide provides up-to-date, official 2025 information (tax year 2025, filed in 2026) drawn directly from IRS.gov resources, including the Partner’s Instructions for Schedule K-1 (Form 1065) (revised December 2025) and Instructions for Form 1065 (revised January 2026). It covers purpose, deadlines, key boxes, reporting rules, limitations, and recent changes.

What Is Schedule K-1 (Form 1065)?

The partnership files Form 1065 (U.S. Return of Partnership Income) as an information return—it does not pay entity-level income tax. Instead, it passes through all items to partners via Schedule K-1.

  • Purpose: Reports your share of the partnership’s ordinary income (loss), rental income, capital gains, deductions, credits, distributions, and other items (per IRC Section 702).
  • Partners keep their K-1 for records and report the items on their personal return. The partnership sends a copy to the IRS.
  • K-1 shows only the last four digits of your SSN/TIN for privacy on the partner copy.

Important: You are liable for tax on your share of income whether or not distributed.

Who Receives Schedule K-1 (Form 1065)?

Every person or entity that was a partner at any time during the tax year receives one, including:

  • Individuals, estates, trusts, corporations, and other partnerships.
  • Foreign partners (additional Schedule K-3 may apply for international items).

Nominees must forward information to beneficial owners.

2025 Tax Year Updates (“What’s New”)

The 2025 instructions include these key changes (per IRS Partner’s Instructions and Form 1065 instructions):

  • Box 13, Code X: Expanded under the One Big Beautiful Bill Act (P.L. 119-21) to include qualified sound recording production expenses under Section 181 (for certain productions commencing after July 4, 2025, and before 2026).
  • Box 19 (Distributions): Updated guidance on separate coding for different distribution categories (cash, property, etc.).
  • Box 20, Code ZZ: New for gain from the sale/exchange of qualified farmland property to qualified farmers (Section 1062). Partners may elect to pay the tax in four equal annual installments for tax years beginning after July 4, 2025.
  • Form 7217 reminder (effective since tax year 2024): Partners receiving property distributions (subject to Section 732) must file Form 7217, Partner’s Report of Property Distributed by a Partnership, with their return for each distribution date. Do not file for cash or marketable securities treated as money. The partnership provides supporting information (see Box 19, Code C).

Other reminders include inconsistent treatment rules (Form 8082) and Section 1061 three-year holding period for carried interests.

Filing Requirements and Deadlines for Form 1065 and Schedule K-1

For Partnerships (Filers of Form 1065):

  • Due date: The 15th day of the 3rd month after the end of the tax year.
    • Calendar-year partnerships (2025): March 15, 2026 (or March 16 if weekend/holiday rules apply).
    • Fiscal-year: 15th day of the 3rd month after year-end.
  • Automatic 6-month extension via Form 7004 (filed by original due date).
  • Furnishing K-1s: Must provide to each partner (and attach copies to the Form 1065 filed with IRS) by the same due date, including extensions.
  • Electronic filing: Required if 10+ returns or 100+ partners in some cases; substitute forms allowed under specific rules (Rev. Proc. 2012-17).
  • Penalties: $255 per month per partner for late furnishing (max 12 months); higher for intentional disregard.

For Partners (Recipients):

  • Report K-1 items on your 2025 individual return (due April 15, 2026, or with extension).
  • Do not file the K-1 with your return unless specifically required (e.g., certain Code O items in Box 15).

How to Read Your Schedule K-1 (Form 1065)?

Parts of the Form:

  • Part I: Partnership information (EIN, name, address, PTP status).
  • Part II: Partner information (your SSN/TIN, name/address, partner type, profit/loss/capital percentages, liabilities share, capital account analysis).
  • Part III: Your share of current-year items (Boxes 1–20).

Key Boxes & Where to Report (2025 Instructions Summary):

Income (Loss)

  • Box 1: Ordinary business income (loss) → Schedule E (Form 1040), line 28 (material participation vs. passive).
  • Box 2: Net rental real estate income (loss) → Schedule E; possible $25,000 special allowance if active participant.
  • Box 3: Other net rental income (loss) → Schedule E (generally passive).
  • Box 4a–c: Guaranteed payments → Schedule E (nonpassive).
  • Box 5–7: Interest, dividends, royalties → Form 1040 (portfolio income).
  • Box 8–9: Capital gains/losses → Schedule D (with 28% rate or unrecaptured Sec. 1250 rules).
  • Box 10: Net Sec. 1231 gain (loss) → Form 4797.
  • Box 11: Other income (loss) → Varies by code (A–S); statements attached.

Deductions

  • Box 12: Sec. 179 deduction → Form 4562 (subject to limits).
  • Box 13: Other deductions (charitable contributions, etc.) → Schedule A or other forms per code.

Self-Employment & Credits

  • Box 14: Self-employment earnings → Schedule SE.
  • Box 15: Credits → Form 3800 or specific credit forms (subject to passive limits via Form 8582-CR).

Other

  • Box 16: Schedule K-3 attached (international items).
  • Box 19: Distributions (cash, property) → Reduces basis; gain if exceeds basis (report on Schedule D/8949); Form 7217 for property.
  • Box 20: Other information (QBI for Sec. 199A deduction on Form 8995/8995-A, EBIE on Form 8990, etc.).

Multiple activities require attached statements.

Reporting K-1 on Your Tax Return: Important Limitations

You cannot always deduct the full amount shown on K-1. Apply these in order:

  1. Basis limitations (Sec. 704(d)): Limited to your adjusted outside basis (track via worksheet in instructions).
  2. At-risk rules (Sec. 465): Use Form 6198.
  3. Passive activity rules (Sec. 469): Use Form 8582 (losses) or 8582-CR (credits). Special rules for real estate professionals.
  4. Excess business loss (Sec. 461(l)): Form 461.

Partner-level elections (e.g., foreign tax credit via Schedule K-3, Sec. 1062 installment election) are made on your return. Report items consistently with the partnership or file Form 8082 for inconsistencies.

Tips to Avoid Common Mistakes

  • Notify the partnership immediately of errors or changes (e.g., address, interest sale within 30 days for Sec. 751).
  • Maintain your own basis worksheet.
  • For property distributions: File Form 7217 as required.
  • Consult a tax professional for complex situations (PTPs, foreign partners, QBI deduction).
  • Use IRS Free File, tax software, or a CPA for accurate entry.

Official Resources (Always Current)

Disclaimer: This article summarizes official IRS guidance for educational purposes as of February 2026. Tax rules can change; always verify with the latest IRS publications or a qualified tax advisor for your specific situation. Do not rely solely on this for filing.