Schedule K-1(Form 1065) - Line 13 - Other Deductions - Code Definition

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For 2004, schedule K-1 (1065) has been redesigned. Each amount on schedule K-1 now has a code next to it, with a list of codes being attached to the prepared K-1. The information below is from the schedule K-1 partners instructions that should be distributed to each partner.

Code A = Cash Contributions (50%) - Enter this amount subject to the 50% AGI limitation on line 15 of (Schedule A).

Code B = Cash Contributions (30%) - Enter this amount subject to the 30% AGI limitation on line 15 of (Schedule A).

Code C = Noncash contributions (50%) – If property other than cash is contributed and if the claimed deduction of one item or group of similar items of property exceeds $5,000, the partnership must give you a copy of (Form 8283) Noncash Charitable contributions, to attach to your return. Do not deduct the amount shown on this form. It is the partnership’s contribution. Instead, deduct the amount identified by code C, box 13, subject to the 50% AGI limitation, on line 16 of (Schedule A).

If the partnership provides you with information that the contribution was property other than cash and does not give you a (Form 8283), see instructions for form 8283 for filing requirements. Do not file Form 8283 unless the total claimed deduction for all contributed items of property exceeds $500.

Code D = Noncash contributions (30%) – Report this amount, subject to the 30% AGI limitation ,on line 16 of (Schedule A)..

Code E. = Capital gain property to 50% organization (30%) – Report this amount, subject to the 30% AGI limitation, on line 16 of schedule A. See special 30% limit for capital gain property in (Publication 526).

Code F = Capital gain property (20%) – Report this amount, subject to the 20% AGI limitation, on line 16 of (Schedule A)..

Code G = Deductions – Portfolio (2% Floor) - Amounts entered with this code are deductions that are clearly and directly allocable to portfolio income (other than investment interest expense and section 212 expenses from a REMIC). Generally, you should enter these amounts on (Schedule A)., line 22. See the instructions for schedule A line 22 and 27 for more information.

These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on (Form 8582).

Code H = Deductions – Portfolio (other) – Generally, you should enter these amounts on schedule A line 27. See the instructions for schedule A , line 22 and line 27, for more information. These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on (Form 8582).

Code I = Investment Interest Expense – Enter this amount (Form 4952) line 1. If the partnership has investment income or other investment expenses, it will report your share of these in box 20 using codes A and B. Include investment income and expenses from other sources to figure out how much of your total investment expenses is deductible. You will need this information to figure your investment interest expense deduction.

If the partnership paid or accrued interest on debts properly allocable to investment property, the amount of interest you are allowed to deduct may be limited.

For more information and special provisions that apply to investment interest expenses, see Form 4952 and (Publication 550).

Code J = Deductions – Royalty Income = Enter deductions allocable to royalties on (schedule E,line 18). For this type of expense, write “From Schedule K-1 (1065)”.

These amounts are not taken into account in figuring your passive activity loss for the year.

Code K = Section 59(e)(2) expenditures = on an attached statement, the partnership will show the type and amount of qualified expenditures to which an election under section 59(e) may apply. The statement will also identify the property for which expenditures were paid or incurred. If there is more than one type of expenditure, the amount of each type will also be listed.

Generally, section 59(e) allows each partner to elect to deduct certain expenses ratably over the number of years in the applicable period rather than deduct the full amount in the current year. Under the election, you may deduct circulation expenditures ratably over a 3 year period. Research and development expenditures and mining exploration and development costs qualify for write-off period of 10 years. Intangible drilling and development costs may be deducted over a 60 month period, beginning with the month in which such costs were paid or incurred.

If you make this election, these items are not treated as adjustments or tax preference items for the purpose of the alternative minimum tax. Make this election on (Form 4562).

Because each partner decides whether to make this election under section 59(e), the partnership cannot provide you with the amount of the adjustment or tax preference item related to the expense. You must decide how to claim the expense on your return and compute the resulting adjustment or tax preference item.

Code L = Amount paid for medical insurance = any amount paid during the tax year for insurance that constitutes medical care for you, your spouse, and your dependents. On line 31 of (Form 1040), you may be allowed to deduct such amounts even if you do not itemize deductions. If you do itemize deductions, enter on line 1 of schedule A any amounts not deducted on line 29 of form 1040.

Code N = Educational assistance benefits = Deduct your educational assistance benefits on a separate line of (schedule E, line 28), up to the $5, 250 limitation. If your benefits exceed $5,250 you may be able to use the excess amount on (Form 8863)to figure the education credits. N. Dependent Care benefits = The partnership will report the dependent care benefits you received. You must use (Form 2441), line 12, to figure the amount, if any, of the benefits you may exclude from your income.

Code O = Preproductive period expenses = the taxpayer may be eligible to elect to deduct these expenses currently or capitalize them under section 263A. See (Publication 225), Farmer’s Tax Guide, and Sec. 1.263A-4 Rules for property produced in a farming business .

Code P = Commercial revitalization deductions from rental real estate activities = Follow the instructions for (Form 8582) to figure out how much of the deduction can be reported on (Schedule E, line 28, column (f)).

Code Q = Penalty for early withdrawal of savings = Report this amount on Form 1040, line 33

Code R = Pensions and IRAs = Payment made on your behalf to an IRA, qualified plan, SEP, or SIMPLE IRA plan on Form 1040, line 32. If the payments to qualified plan were to a defined benefit plan, the partnership should give you a statement showing the amount of the benefit accrued for the current tax year.

Code S – Reforestation expense deduction = The partnership will provide a statement that describes the qualified timber property for these reforestation expenses. The expense deduction is limited to $10,000 ($5,000 if married filing separately) for each qualified timber property, including your distributive share of the partnership’s expense and any reforestation expenses that you separately paid or incurred after October 22, 2004, for the property. Follow the instructions for (Form 8582) to report a deduction allocable to a passive activity. If you materially participated In the reforestation activity, report the deduction on line 28, column (h) of (schedule E).

Code T = Other Deductions = Amounts with this code may include:

  • Itemized deductions (enter on schedule A(1040))
  • Soil and water conservation expenditures. See section 175 for limitations on the amount you are allowed to deduct.
  • Expenditures for the removal of architectural and transportation barriers to the elderly and disabled that the partnership elected to be treated as a current expense. The deductions are limited by Section 190(c) to $15,000 per year from all sources.
  • Interest expenses allocated to debt-financed distributions. The manner in which you report such interest expense depends upon the taxpayer’s use of the distributed debt proceeds. If the proceeds were used in a trade or business activity, report the interest on line 28 of (schedule E). In column (a) enter the name of the partnership and enter “interest expense”. If you materially participated in the trade or business activity, enter the amount of the interest expense in column (h). If you did not materially participate in the activity, follow the instructions for (Form 8582) to determine the amount of interest expense the taxpayer can report in column (f). If the proceeds were used in an investment activity, enter the interest on (Form 4952). If the proceeds are used for personal purposes, the interest is generally not deductible.
  • Interest paid or accrued on debt properly allocable to your share of a working interest in any oil and gas property (if your liability is not limited). If you did not materially participate in the oil and gas activity, this interest is investment interest reported as described on page 8; otherwise it is trade or business interest. If you did not materially participate in the oil and gas activity, this interest is investment interest expense and should be reported on (Form 4952). If you materially participated in the activity, report the interest on line 28 of (schedule E). On a separate line, enter “Interest Expense” and the name of the partnership in column (a) and the amount in column (h).
  • Contributions to a capital construction fund (CCF). The deduction for a CCF investment is not taken on (schedule E). Instead, you would subtract the deduction from the amount that would normally be entered as taxable income on line 42. In the margin to the left of line 42, write “CCF” and the amount of the deduction. The partnership will give you a description and an amount for your share of each of these items.
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