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participated in, or cooperated with, an

limitations. Each of these limitations is

you can claim to the amount you could

international boycott. See Form 5713 and

discussed separately below.

actually lose in the activity. These losses

the instructions for more information.

and deductions include a loss on the

Other limitations may apply to specific

disposition of assets and the section 179

deductions (for example, the section 179

Definitions

expense deduction. However, if you

expense deduction). Generally, these

acquired your partnership interest before

limitations apply before the basis, at-risk,

1987, the at-risk rules do not apply to

General Partner

and passive loss limitations.

losses from an activity of holding real

A general partner is a partner who is

Basis Rules

property placed in service before 1987 by

personally liable for partnership debts.

the partnership. The activity of holding

Generally, you may not claim your share

mineral property does not qualify for this

Limited Partner

of a partnership loss (including a capital

exception. The partnership should identify

loss) to the extent that it is greater than

A limited partner is a partner in a

on an attachment to Schedule K-1 the

the adjusted basis of your partnership

partnership formed under a state limited

amount of any losses that are not subject

interest at the end of the partnership’s tax

partnership law, whose personal liability

to the at-risk limitations.

year.

for partnership debts is limited to the

Generally, you are not at risk for

amount of money or other property that

The partnership is not responsible for

amounts such as the following:

the partner contributed or is required to

keeping the information needed to figure

•

Nonrecourse loans used to finance the

contribute to the partnership. Some

the basis of your partnership interest.

activity, to acquire property used in the

members of other entities, such as

Although the partnership does provide an

activity, or to acquire your interest in the

domestic or foreign business trusts or

analysis of the changes to your capital

activity, that are not secured by your own

limited liability companies that are

account in Item J of Schedule K-1, that

property (other than the property used in

information is based on the partnership’s

classified as partnerships, may be treated

the activity). See the instructions for Item

books and records and cannot be used to

as limited partners for certain purposes.

F on page 5 for the exception for qualified

figure your basis.

See, for example, Temporary Regulations

nonrecourse financing secured by real

section 1.469-5T(e)(3), which treats all

You can figure the adjusted basis of

property.

members with limited liability as limited

your partnership interest by adding items

•

Cash, property, or borrowed amounts

partners for purposes of section

that increase your basis and then

used in the activity (or contributed to the

469(h)(2).

subtracting items that decrease your

activity, or used to acquire your interest in

basis.

Nonrecourse Loans

the activity) that are protected against

Items that increase your basis are:

loss by a guarantee, stop-loss agreement,

Nonrecourse loans are those liabilities of

•

Money and your adjusted basis in

or other similar arrangement (excluding

the partnership for which no partner bears

property contributed to the partnership.

casualty insurance and insurance against

the economic risk of loss.

•

Your share of the increase in the

tort liability).

•

partnership’s liabilities (or your individual

Amounts borrowed for use in the

Elections

liabilities caused by your assumption of

activity from a person who has an interest

Generally, the partnership decides how to

partnership liabilities).

in the activity, other than as a creditor, or

•

figure taxable income from its operations.

Your share of the partnership’s income

who is related, under section 465(b)(3), to

However, certain elections are made by

(including tax-exempt income).

a person (other than you) having such an

•

you separately on your income tax return

Your share of the excess of the

interest.

and not by the partnership. These

deductions for depletion over the basis of

To help you complete Form 6198, the

elections are made under the following

the property subject to depletion.

partnership should specify on an

code sections:

Items that decrease your basis (but

attachment to Schedule K-1 your share of

•

Section 59(e) (deduction of certain

not below zero) are:

the total pre-1976 losses from a section

•

qualified expenditures ratably over the

Money and the adjusted basis of

465(c)(1) activity for which there existed a

period of time specified in that section).

property distributed to you.

corresponding amount of nonrecourse

•

For more information, see the instructions

Your share of the decrease in the

liability at the end of the year in which the

for lines 18a and 18b of Schedule K-1 on

partnership’s liabilities (or your individual

losses occurred. Also, you should get a

page 9.

liabilities assumed by the partnership).

separate statement of income, expenses,

•

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

Your share of the partnership’s losses

etc., for each activity from the partnership.

discharge of indebtedness).

(including capital losses).

•

Passive Activity Limitations

Section 617 (deduction and recapture

Your share of the partnership’s section

of certain mining exploration

179 expense deduction (even if you

Section 469 provides rules that limit the

expenditures).

cannot deduct all of it).

deduction of certain losses and credits.

•

Section 901 (foreign tax credit).

Your share of the partnership’s

These rules apply to partners who:

•

nondeductible expenses.

Are individuals, estates, trusts, closely

•

Additional Information

The amount of your deduction for

held corporations, or personal service

depletion of any partnership oil and gas

corporations and

For more information on the treatment of

•

property (not to exceed your allocable

Have a passive activity loss or credit for

partnership income, credits, deductions,

share of the adjusted basis of that

the tax year.

etc., see Pub. 541, Partnerships, and

property).

Generally, passive activities include:

Pub. 535, Business Expenses.

For more details on the basis rules,

1. Trade or business activities in

see Pub. 541.

To get forms and publications, see the

which you did not materially participate

instructions for your tax return.

and

At-Risk Limitations

2. Activities that meet the definition of

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

Limitations on Losses,

rental activities under Temporary

deduction from any activity carried on as

Regulations section 1.469-1T(e)(3) and

Deductions, and Credits

a trade or business or for the production

Regulations section 1.469-1(e)(3).

of income by the partnership, and (b)

There are three separate potential

amounts in the activity for which you are

Passive activities do not include:

limitations on the amount of partnership

not at risk, you will have to complete

losses that you may deduct on your

1. Trade or business activities in

Form 6198, At-Risk Limitations, to figure

return. These limitations and the order in

which you materially participated.

your allowable loss.

which you must apply them are as

2. Rental real estate activities in which

follows: the basis rules, the at-risk

The at-risk rules generally limit the

you materially participated if you were a

limitations, and the passive activity

amount of loss and other deductions that

“real estate professional” for the tax year.

-2-

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) - 2002 Page 2

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