Updated October 16, 2026. Quick answer: Codes N, AE and AF in box 20 of Schedule K-1 (Form 1065) carry business interest information tied to the section 163(j) limit. Code N is the partner’s share of deductible business interest expense, reported for information only. Codes AE and AF are excess taxable income and excess business interest income, both entered on Form 8990, Schedule A, line 43, when the partner must file that form.
What the three codes report
Code N is the first of the three. “For tax years beginning after November 12, 2020, the partnership will report your share of the partnership’s deductible BIE for inclusion in the separate loss class for computing any basis limitation” (BIE here means business interest expense). The instructions explain why it is listed: “This information is necessary if your losses are limited under section 704(d).” This page covers the partner’s side of a K-1 that has been received. Every other box is set out on the Schedule K-1 (Form 1065) boxes overview.
Box 20 is a coded box. “In box 11, boxes 13 through 15, and boxes 17 through 20, the partnership will identify each item by entering a code in the column to the left of the dollar amount entry space.” When a code needs more than one number, the partnership attaches a statement: “The partnership will enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each item for which it has attached a statement providing additional information.” “For those informational items that can’t be reported as a single dollar amount, the partnership will enter an asterisk (*) in the left column and enter “STMT” in the dollar amount entry space to indicate the information is provided on an attached statement.”
Code N is information only
The amount in code N is not an extra deduction. “Deductible BIE is reported elsewhere on Schedule K-1 and the total amount is reported here for information only and was already included as a deduction on another line of your Schedule K-1.” “Included in the code N information is a statement providing the allocation of the BIE already deducted by the partnership by line number on Schedule K-1.”
Excess business interest expense, the part not currently deductible, is reported in a different box. “Any EBIE not deductible under section 163(j) will be included in box 13, code K, for inclusion in the basis limitation and isn’t reported here.” That item is described in the box 13 instructions: “If the partnership reports EBIE to the partner, the partner is required to file Form 8990.” “See the Instructions for Form 8990 for additional information.”
Codes AE and AF on Form 8990
The two income codes go to the same schedule of Form 8990, in different columns.
| Code | As printed in the instructions |
|---|---|
| Code AE, excess taxable income | “If the partnership was required to file Form 8990, it may determine it has excess taxable income.” “Report the amount of excess taxable income in column (f) of Form 8990, Schedule A, line 43, if you’re required to file Form 8990.” |
| Code AF, excess business interest income | “If the partnership is required to file Form 8990, it may determine it has excess business interest income.” “Enter the amount of excess business interest income in column (g) of Form 8990, Schedule A, line 43, if you’re required to file Form 8990.” |
For both, the instructions close with the same pointer: “See the Instructions for Form 8990 for additional information.”
How business interest enters the basis worksheet
Business interest expense is its own class in the basis computation. The worksheet instructions assign it to two lines: “Enter excess business interest expense (EBIE).” “Enter BIE reported in box 20, code N, of Schedule K-1.”
The order of absorption is spelled out: “To the extent basis is proportionately allocated to this loss class (consisting of lines 15n and 15q), interest expense is absorbed by applying currently deductible BIE (line 15q) to basis first.” “Once line 15q has been fully absorbed by basis, any remaining basis proportionately allocated to the BIE class is then absorbed by applying it to EBIE on line 15n.” “EBIE is only applicable to partnerships subject to section 163(j).” “BIE is a separate loss class whether or not the taxpayer is subject to the section 163(j) limitation.”
Basis effect and selling the interest
The box 13 code K instructions say what excess interest does to basis. “For tax years beginning after 2017, the partner’s basis in its partnership interest at the end of the tax year is reduced (but not below zero) by the amount of excess business interest allocated to the partner for the tax year, even if the partner isn’t allowed a deduction for the allocated excess business interest in the year of the basis reduction.” On a sale: “If the partner disposes of a partnership interest in which the basis has been reduced before all of the allocated excess business interest was used, the partner increases its basis immediately before the sale for the amount not yet deducted.”
Two related codes appear in the same list. “The partnership will provide the information needed to complete Form 8990, Schedule A, for foreign partners which are required to report their allocable share of EBIE, excess taxable income, and excess business interest income, if any, that’s attributable to income effectively connected with a U.S. trade or business.” That is code AY.
The numbers in Part III come before the partner’s own limits. “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”. “If you have losses, deductions, or credits from a prior year that weren’t deductible or usable because of certain limitations, such as the basis limitations or the at-risk limitations, take them into account in determining your net income, loss, or credits for this year.”
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
- Deducting code N a second time. The instructions say deductible BIE was already included as a deduction on another line of the K-1 and the code N total is reported for information only.
- Looking for disallowed interest in box 20. The instructions say EBIE not deductible under section 163(j) is included in box 13, code K, and isn’t reported under code N.
- Skipping Form 8990 for codes AE and AF. The instructions direct the amounts to Form 8990, Schedule A, line 43, in columns (f) and (g), if the partner is required to file Form 8990.
Related: Form 4952 investment interest, Schedule E (Form 1040), Form 6198 at-risk limits, Schedule K-1 (Form 1065) boxes explained, and Form 8582 passive activity loss limits.
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.