Updated October 16, 2026. Quick answer: Box 1 of Schedule K-1 (Form 1065) is a partner’s share of the partnership’s ordinary income or loss from trade or business activities. For an individual filing a 2025 Form 1040, the instructions send it to Schedule E, line 28, and the column depends on whether the activity is passive to the partner. Losses are tested first for basis and at-risk limits.
Schedule D and Schedule E (Form 1040) for 2025, read line by line: Schedule E Part II.
What box 1 reports
On the form, line 1 of Part III is labelled “Ordinary business income (loss)”. The instructions explain it in one sentence: “The amount reported in box 1 is your share of the ordinary income (loss) from trade or business activities of the partnership.” This page covers the partner’s side of a K-1 you received; it does not cover how the partnership files its own return. Every other box is set out on the Schedule K-1 (Form 1065) boxes overview.
The instructions add where the amount lands and what to do first: “Generally, where you report this amount on Form 1040 or 1040-SR depends on whether the amount is from an activity that’s a passive activity to you.” The loss tests come before the reporting: individual partners “report your box 1 income (loss) as instructed, after applying the basis and at-risk limitations on losses.”
When there is more than one business, “If the partnership had more than one trade or business activity, it will attach a statement identifying the income or loss from each activity.”
Where box 1 goes on your return
For an individual partner filing a 2025 Form 1040 or 1040-SR the answer turns on material participation. The instructions give four situations, set out below. The destination is Schedule E (Form 1040), line 28.
| Your situation | Where the instructions send it |
|---|---|
| You materially participated | “Report box 1 income (loss) from partnership trade or business activities in which you materially participated in column (i) or (k) of Schedule E (Form 1040), line 28.” |
| Did not materially participate, income in box 1 | “If income is reported in box 1, report the income in column (h) of Schedule E (Form 1040), line 28.” |
| Did not materially participate, loss in box 1 | “follow the Instructions for Form 8582 to figure how much of the loss can be reported in column (g) of Schedule E (Form” 1040), line 28. |
| Item D (PTP) is checked | “if the box in item D is checked, report the income following the rules for PTPs under Publicly traded partnerships, earlier.” |
The same instruction covers a loss when the PTP box is checked: “However, if the box in item D is checked, report the loss following the rules for PTPs under Publicly traded partnerships, earlier.”
If a partner has more than one K-1, “If you’re required to file Schedule E (Form 1040) and receive a Schedule K-1 from multiple partnerships, report items from each partnership’s Schedule K-1 on a separate line 28 of Schedule E.”
Material participation decides the column
Material participation is the dividing line between columns (i) or (k) and columns (g) or (h). The instructions require a determination activity by activity: “You must determine if you materially participated (a) in each trade or business activity held through the partnership”. “All determinations of material participation are based on your participation during the partnership’s tax year.”
For an individual who is a general partner, or a limited partner who owned a general partnership interest at all times during the tax year, “you materially participated in an activity only if one or more of the following apply.”
| Test | As printed |
|---|---|
| 1 | “You participated in the activity for more than 500 hours during the tax year.” |
| 2 | “Your participation in the activity for the tax year constituted substantially all the participation in the activity of all individuals (including individuals who aren’t owners of interests in the activity).” |
| 3 | “You participated in the activity for more than 100 hours during the tax year, and your participation in the activity for the tax year wasn’t less than the participation in the activity of any other individual (including individuals who weren’t owners of interests in the activity) for the tax year.” |
| 4 | “The activity was a significant participation activity for the tax year, and you participated in all significant participation activities (including activities outside the partnership) during the year for more than 500 hours.” |
| 5 | “You materially participated in the activity for any 5 tax years (whether or not consecutive) during the 10 tax years that immediately precede the tax year.” |
| 6 | “The activity was a personal service activity and you materially participated in the activity for any 3 tax years (whether or not consecutive) preceding the tax year.” |
| 7 | “Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the tax year.” |
A limited partner has fewer routes: “If you’re a limited partner, you must meet item 1, 5, or 6 above to qualify as having materially participated.”
The limits that apply before box 1 reaches the return
The instructions list four limits and put them in a fixed order: “These limitations and the order in which you must apply them are as follows: the basis limitations, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.” The amounts printed in Part III are before any of them. “The amounts shown in boxes 1 through 21 reflect your share of income, loss, deductions, credits, and other items from partnership business or rental activities without reference to limitations on losses or adjustments that may be required of you”.
| Limit | As printed in the instructions |
|---|---|
| Basis | “Generally, a partner may only claim their share of a partnership loss (including a capital loss) to the extent it doesn’t exceed their adjusted basis in the partnership at the end of the partnership’s tax year.” |
| At-risk | “The at-risk rules generally limit the amount of loss and other deductions that you can claim to the amount you could actually lose in the activity.” |
| Passive activity | “If you’re an individual, an estate, or a trust, and you have a passive activity loss or credit, use Form 8582, Passive Activity Loss Limitations, to figure your allowable passive losses” |
| Excess business loss | “Your distributive share of losses attributable to all of the partnership’s trades or businesses may be limited under section 461(l).” |
Basis is the partner’s own job to track. “Any losses and deductions not allowed can be carried forward.” “It’s the partner’s responsibility to track and maintain the information necessary to figure their adjusted basis in the partnership (also known as outside basis).” The partnership’s capital account on the K-1 is not a substitute: “Although the partnership provides an analysis of the partner’s capital account in item L of Schedule K-1, that information is based on the partnership’s books and records and can’t be used to figure the partner’s adjusted basis.”
For the at-risk step, “you’ll have to complete Form 6198, At-Risk Limitations, to figure your allowable loss for the activity.” Form 6198 is covered on the Form 6198 page.
Passive losses are worked out on Form 8582, explained on the Form 8582 page.
The business loss limit is the last step. “See Form 461, Limitation on Business Losses, and its instructions for more information.”
A statement can matter as much as the box. “Note: Box 22 of Schedule K-1, Part III, will be checked when a statement is attached.” The at-risk statement is described this way: “The partnership should identify on a statement attached to Schedule K-1 any losses that aren’t subject to the at-risk limitations.” And for the passive step: “Note: Box 23 of Schedule K-1, Part III, will be checked when a statement is attached.”
Publicly traded partnerships and item D
If the partnership is publicly traded, the passive loss rules change. “If the box in item D is checked, you’re a partner in a PTP and must follow the rules discussed earlier under Publicly traded partnerships.” Those rules begin: “The passive activity limitations are applied separately for items (other than the low-income housing credit and the rehabilitation credit) from each PTP.” “Don’t report passive income, gains, or losses from a PTP on Form 8582.” On the form itself, item D reads “Check if this is a publicly traded partnership (PTP)”.
A net passive loss from a PTP is held separately: “a passive loss from a PTP is suspended and carried forward to be applied against passive income from the same PTP in later years.”
Section 743(b) adjustments, prior-year losses and timing
If the K-1 reports a basis adjustment tied to box 1, the instructions say how to treat it. “A section 743(b) adjustment increases or decreases your share of income, deduction, gain, or loss for a partnership item.” For one that touches trade or business depreciation, “report the adjustment on Schedule E (Form 1040), line 28, in accordance with the instructions for box 1 of Schedule K-1.”
Timing follows the partnership’s year, not yours. “If you file your tax return on a calendar-year basis, but your partnership files a return for a fiscal year, report the amounts on your tax return for the year in which the partnership’s fiscal year ends.” “For example, if the partnership’s tax year ends in February 2026, report the amounts on your 2026 tax return.”
Which revision applies
The edition read for this page is the 2025 Partner’s Instructions for Schedule K-1 (Form 1065) and the 2025 Schedule K-1 (Form 1065) itself, which are the revisions irs.gov served when they were read on 2026-10-16. Check the revision printed on the Schedule K-1 you received and the matching instructions, because a later edition can change the box layout, the column letters and the reporting lines.
Common mistakes
- Putting every box 1 loss straight into Schedule E. The instructions say individual partners report box 1 after applying the basis and at-risk limitations, and a loss from an activity without material participation goes through the Form 8582 instructions to column (g).
- Treating the capital account in item L as basis. The instructions say the item L analysis is based on the partnership’s books and records and can’t be used to figure the partner’s adjusted basis.
- Missing the PTP checkbox. When the box in item D is checked, the instructions say to follow the PTP rules and not to report passive income, gains, or losses from a PTP on Form 8582.
Related: Schedule E (Form 1040), Form 8582 passive activity loss limits, Form 6198 at-risk limits, Schedule K-1 (Form 1065) boxes explained, and farm LLC or partnership basics.
Sources
- 2025 Partner’s Instructions for Schedule K-1 (Form 1065): https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf
- Schedule K-1 (Form 1065) (2025), Partner’s Share of Income, Deductions, Credits, etc.: https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf
Read from the IRS documents linked above on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.