Updated October 18, 2026. Quick answer: Schedule L is the partnership’s balance sheet at the beginning and end of the tax year, taken from its books and records. Assets are lines 1 to 14, liabilities and capital are lines 15 to 22, and the instructions comment only on a handful of lines because the rest are self-explanatory.
What Schedule L is
The form heading reads “Balance Sheets per Books” with columns for the “Beginning of tax year” and “End of tax year”. The instructions say “The balance sheets should agree with the partnership’s books and records.” “Attach a statement explaining any differences.” “Note: Lines that aren’t discussed are self-explanatory.” It sits on page 6 of the Form 1065 return.
Who has to complete it
The instructions give this tip: “Schedules L, M-1, and M-2 aren’t required to be completed if the partnership answered” Yes to question 4 on Schedule B. Question 4 is covered on the Schedule B questions 4 and 5 page.
Assets, lines 1 to 14
The form lists cash, receivables, inventories, investments, depreciable assets and so on, ending with “Total assets” on line 14. The instructions comment on three asset lines.
| Line | Form caption | What the instructions say |
|---|---|---|
| Line 5 | “Tax-exempt securities” | “State and local government obligations, the interest on which is excludable from gross income under section 103(a)” |
| Line 7a | “Loans to partners (or persons related to partners)” | “Include on this line loans to partners or persons related to partners.” |
| Line 14 | “Total assets” | “Generally, total assets at the beginning of the year (column (b) of Schedule L, line 14) must equal total assets at the close of the prior tax year (column (d) of Schedule L, line 14).” |
For line 5 the instructions also include “Stock in a mutual fund or other RIC that distributed exempt-interest dividends during the tax year of the partnership.” For line 7a they define related persons: “Persons are related if they have a relationship specified in section 267(b) or 707(b).” “Amounts included here shouldn’t be included elsewhere on lines 1 through 13.”
Line 14 in more detail
If the two years do not line up, “attach a statement explaining the difference.” The instructions also say “For purposes of measuring total assets at the end of the year, the partnership’s assets may not be netted against or reduced by partnership liabilities.” “In addition, asset amounts may not be reported as a negative number.”
The instructions give a worked example for a partnership that holds an interest in another partnership: “On its Schedule L, Partnership A must report $16 million on line 8 as the amount of its investment asset in Partnership B and report on line 20 its $20 million share of Partnership B’s liabilities.” “These amounts can’t be netted on Schedule L.”
Liabilities and capital, lines 15 to 22
The form lists accounts payable, loans, other liabilities, then “Partners’ capital accounts” on line 21 and “Total liabilities and capital” on line 22. The instructions comment on three liability lines.
| Line | Form caption | What the instructions say |
|---|---|---|
| Line 18 | “All nonrecourse loans” | “Nonrecourse loans are those liabilities of the partnership for which no partner bears the economic risk of loss.” |
| Line 19a | “Loans from partners (or persons related to partners)” | “Include on this line loans from partners or persons related to partners.” |
| Line 20 | “Other liabilities (attach statement)” | “A partnership that is a partner in a tiered partnership must include as a liability on line 20 the partner’s share of the tiered partnership’s liabilities to the extent they are recourse liabilities to the partner.” |
For line 18 they add “If the partnership’s nonrecourse liabilities include its share of the liabilities of another partnership, the partnership’s share of those liabilities must be reflected on line 18.” Line 19a has the same related-person wording as line 7a, and “Amounts included here shouldn’t be included elsewhere on lines 15 through 21.”
Currency and Schedule M-3 partnerships
The instructions say “All amounts on the balance sheet should be reported in U.S. dollars.” “If the partnership’s books and records are kept in a foreign currency, the balance sheet should be translated in accordance with U.S. generally accepted accounting principles (GAAP).” For a partnership that files Schedule M-3, “the amounts reported on Schedule L must be amounts from financial statements used to complete Schedule M-3.” The instructions for Schedule M-3 (Form 1065) are the place to read the rest.
Where the number comes from
Every Schedule L amount comes from the partnership’s books and records at the start and the end of the year. The beginning column should match last year’s ending column, as the line 14 instruction above says. Assets and liabilities are shown separately, not netted.
Where it goes next
Schedule L stands next to the reconciliation schedules on the same page. Schedule M-2 begins with the partners’ tax-basis capital accounts, and the instructions note that “If the partnership’s balance sheet (Schedule L) is reported on the tax basis and if the aggregate of the partners’ beginning and ending capital accounts differs from the amounts reported on Schedule L, attach a statement reconciling any differences.” See the Schedule M-2 page and the Schedule M-1 and the analysis of net income page.
Edition and line numbers
This page reads the 2025 Form 1065 and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. Form 1065 carries no “Attach to” caption, so the form’s own title line is the identifier: “U.S. Return of Partnership Income”, with the header “For calendar year 2025, or tax year beginning”. Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.
Common mistakes
- Netting a liability against an asset. The instructions say “These amounts can’t be netted on Schedule L.”
- Letting the beginning balance drift from last year’s ending balance. The instructions say “If total assets at the beginning of the year don’t equal total assets at the close of the prior year, attach a statement explaining the difference.”
- Filling in the balance sheet when it is not required. The instructions give this tip: “Schedules L, M-1, and M-2 aren’t required to be completed if the partnership answered” Yes to question 4 on Schedule B.
Related: Form 1065, Form 1120-S, farm LLC or partnership basics, and Form 8865.
Sources
- Instructions for Form 1065, U.S. Return of Partnership Income (2025): https://www.irs.gov/pub/irs-pdf/i1065.pdf
- Form 1065, U.S. Return of Partnership Income (2025): https://www.irs.gov/pub/irs-pdf/f1065.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.