Updated October 18, 2026. Quick answer: Part II reports your share of income or loss from a partnership or S corporation, taken from the Schedule K-1 you receive. Line 27 asks about prior year unallowed losses, line 28 lists each entity in columns (a) to (k), lines 29a and 29b total the columns, and line 32 combines lines 30 and 31.
What Part II is for
The instructions say “If you are a member of a partnership or joint venture or a shareholder in an S corporation, use Part II to report your share of the partnership or S corporation income (even if not received) or loss.” The form heads the part “Income or Loss From Partnerships and S Corporations”. The related Schedule K-1 boxes are explained in the Schedule K-1 box 1 guide, and the entity returns are covered at Form 1065 and Form 1120-S.
You “should receive a Schedule K-1 from the partnership or S corporation.” “Do not attach Schedules K-1 to your return. Keep them for your records.” The page for the whole schedule is Schedule E (Form 1040).
Line 27: the prior year question
The form asks: “Are you reporting any loss not allowed in a prior year due to the” at-risk or basis limitations, “a prior year unallowed loss from a passive activity (if that loss was not reported on Form 8582), or unreimbursed partnership expenses?” The instructions warn what happens if you answer yes and do not follow them: “the IRS may send you a notice of additional tax due because the amounts reported by the partnership or S corporation on Schedule K-1 do not match the amounts you reported on your tax return.”
For prior year losses the instructions say “Do not combine these losses with, or net them against, any” current-year amounts, and to “Enter “PYA” in column (a) of the same line.” For unreimbursed partnership expenses the label is different: “Enter “UPE” in column (a) of the same line.”
Line 28: the columns
Line 28 has one row per entity, with these column captions: “(a) Name”, “(b) Enter P for partnership; S for S corporation”, “(c) Check if foreign partnership”, “(d) Employer identification number”, “(e) Check if basis computation is required” and “(f) Check if any amount is not at risk”. The income and loss columns come under the headings “Passive Income and Loss” and “Nonpassive Income and Loss”.
For the amounts, the instructions say to “enter in the applicable column of line 28 your” current-year ordinary income or loss from the partnership or S corporation, and to report related items on a separate line. If you have passive income, “complete Part II, column (h), for that activity.” “If you have nonpassive income or losses, complete Part II, columns (i) through (k), as appropriate.” Where a passive loss applies, “in most cases you need to complete Form 8582 to figure the amount of the loss to enter in Part II, column (g), for that activity.” See Form 8582.
Loss rules that can reduce what you enter
The instructions say “If you report a loss from a partnership or S corporation, your loss may be reduced or not allowed this year.” “Apply the basis rules,” at-risk rules, and passive activity loss rules to your loss on Schedule E. For the at-risk rules: “If you are subject to the atrisk rules for any activity, check the box on the appropriate line in Part II, column (f), of Schedule E, and use Form 6198 to figure the amount of any deductible loss.” The form is described at Form 6198.
The note at the top of Part II says “If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an S corporation, you must check the box in column (e) on line 28 and attach the required basis computation.” The instructions also warn that “If you report a loss on Schedule E from a partnership or S corporation engaged in a trade or business, use Form 461 to figure your excess business loss.”
Where the number comes from: lines 29a to 32
The total rows are built from the columns on line 28. The form captions are “Add columns (h) and (k) of line 29a” for line 30, “Add columns (g), (i), and (j) of line 29b” for line 31, and “Total partnership and S corporation income or (loss). Combine lines 30 and 31.” for line 32. If you need more room, “attach a continuation sheet using the same format as shown in Part II or III.” “However, be sure to complete the” Totals columns for lines 29a and 29b.
Computed illustration, not an IRS example: if line 30 is $7,000 and line 31 is a loss of $3,000 then line 32 is $7,000 minus $3,000 which is $4,000.
Where it goes next
The line 32 total is one of the amounts the form tells you to combine on line 41: “Total income or (loss). Combine lines 26, 32, 37, 39, and 40.” That total reaches Schedule 1 and then Form 1040, as covered on the Schedule E Parts IV and V page. The instructions also say the loss reminder applies to this line: “If you report a loss on line 26, 32, 37, or 39 of your Schedule E (Form 1040), you may be subject to a business loss limitation.”
One point about tax on this income: “share of the net income of an S corporation is not subject to” self-employment tax, while the instructions say part of a partnership’s income “may be considered net earnings from” self-employment that is reported on Schedule SE.
Edition and line numbers
This page reads the 2025 Schedule E (Form 1040) and its 2025 instructions, the current files irs.gov served on 2026-10-18 (byte-identical to the archived copies). They are the files for the tax year 2025 return, filed in 2026. The schedule says “Attach to Form 1040, 1040-SR, 1040-NR, or 1041.” Check the tax year printed on the schedule you are filling in and use the line numbers on that year’s schedule, because a different year’s schedule can number or word its lines differently.
Common mistakes
- Netting a prior year unallowed loss into the current year figure. The instructions say “Do not combine these losses with, or net them against, any” current-year amounts.
- Skipping the column (f) box for an at-risk loss. The instructions say “check the box on the appropriate line in Part II, column (f), of Schedule E”.
- Claiming an S corporation loss without a basis computation. The form says you “must check the box in column (e) on line 28 and attach the required basis computation.”
Related: Schedule E (Form 1040), Schedule K-1 box 1 guide, Form 1065, Form 1120-S, and Form 8582.
Sources
- Instructions for Schedule E (Form 1040), Supplemental Income and Loss (2025): https://www.irs.gov/pub/irs-pdf/i1040se.pdf
- Schedule E (Form 1040), Supplemental Income and Loss (2025): https://www.irs.gov/pub/irs-pdf/f1040se.pdf
Read from the IRS documents linked above on October 18, 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.