Updated October 16, 2026. Quick answer: Box 21 of Schedule K-1 (Form 1065) shows foreign taxes paid or accrued by the partnership. The 2025 instructions say these taxes reduce a partner’s basis and are limited to basis, and that the box 21 amount is not what a partner uses to complete Form 1116. The foreign tax credit figures come from Schedule K-3, which box 16 of the K-1 says is attached when checked.
Schedule 3 (Form 1040) for 2025, read line by line: Schedule 3 line 1.
What box 21 reports
On the form, line 21 of Part III is labelled “Foreign taxes paid or accrued”. The instructions give the box a short entry: “Foreign taxes paid or accrued reduce a partner’s basis and are limited to basis.” 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.
The instruction continues with a direction about the credit form: “Don’t use this amount to complete your Form 1116, Foreign Tax Credit; or Form 1118, Foreign Tax Credit”. The destination is named in the next sentence: “See Schedule K-3 to complete your Form 1116 or 1118.” The individual form is covered on the Form 1116 page.
Box 16 and Schedule K-3
The link to the K-3 sits in box 16. On the form it reads “Schedule K-3 is attached if checked”. The instructions give both cases. “If the partnership checked the box, see the attached Schedule K-3 with respect to items of international tax relevance.” “If the partnership didn’t check the box, the partnership attached a statement to the Schedule K-1 (or issued a statement prior to furnishing the Schedule K-1) notifying the partner that the partner won’t receive Schedule K-3 from the partnership unless the partner requests the schedule.”
Box 16 ends with a pointer: “For additional information, see the Partner’s Instructions for Schedule K-3.” The K-3 is also the home of the foreign-credit election the instructions list among the partner-level elections: “Section 901 (foreign tax credit). See Schedule K-3.”
Where the K-1 sends foreign-source items
Several other boxes carry the same hand-off to the K-3. “If you have any foreign source qualified dividends, see the Partner’s Instructions for Schedule K-3 for additional information.” “If you have any foreign source net long-term capital gain (loss), see the Partner’s Instructions for Schedule K-3 for additional information.” “If you have any foreign source collectibles (28%) gain (loss), see the Partner’s Instructions for Schedule K-3 for additional information.”
Dividends from foreign corporations have a further twist, and the instructions put it under boxes 6a and 6b. “Some of the amounts reported in this box may be attributable to PTEP in annual PTEP accounts that you have with respect to a foreign corporation and are therefore excludable from your gross income.” “Use Schedule K-3, Part V, to determine your share of distributions by foreign corporations to the partnership that are attributable to PTEP in your annual PTEP accounts with respect to the foreign corporations.”
A partner who owns controlled foreign corporation stock through the partnership can see basis move too. “Your adjusted basis may be increased under section 961(a) for amounts that you’re required to include in income with respect to a controlled foreign corporation (CFC)”. “See the Partner’s Instructions for Schedule K-3 for more information on sections 951(a) and 951A inclusions.”
Basis, not the credit, is what box 21 measures
Because the box reduces basis, it belongs with the other basis-limit items. “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.” “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 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.”
Foreign items the K-1 reports elsewhere
Box 20 also carries foreign-partner and international coding. For example, “The partnership will provide the information needed to complete Form 8990, Schedule A, for foreign partners” (code AY), and for code AB, “For foreign transferors, the information for code AB must also have been reported to you on Schedule K-3, Part XIII.” The Form 8960 treatment of certain foreign-corporation items is in code Y: “Code Y is used to report information not provided elsewhere on Schedule K-3 (or an attachment) regarding income from CFCs and passive foreign investment companies (PFICs) the stock of which is owned by the partnership.” See also the Form 8960 page.
Timing follows the partnership’s year. “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.”
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
- Copying the box 21 amount onto Form 1116. The instructions say not to use this amount to complete Form 1116 and to use Schedule K-3 instead.
- Ignoring box 16. The instructions say that when the partnership checked the box the Schedule K-3 is attached, and when it did not, the partner receives a statement and gets a K-3 only on request.
- Overlooking the basis effect. The instructions say foreign taxes paid or accrued reduce a partner’s basis and are limited to basis.
Related: Form 1116 foreign tax credit, Form 8960 net investment income tax, Schedule K-1 (Form 1065) boxes explained, Form 1040, and Schedule A (Form 1040).
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.