Form 1120-S Schedule K Lines 1 to 4 (2025)

Updated October 18, 2026. Quick answer: Schedule K lines 1 to 4 are the first income items the S corporation passes through to its shareholders: ordinary business income, net rental real estate income, other net rental income and interest income. Line 1 is the page 1 result, line 2 comes from Form 8825, line 3 is built from the corporation’s other rental records, and line 4 is taxable portfolio interest. Each line is then split among shareholders on Schedule K-1.

Line 1: ordinary business income (loss)

The form prints “Ordinary business income (loss) (page 1, line 22)”. The instructions say “Enter the amount from Form 1120-S, page 1, line 22.” They tell you to enter the income (loss) “without reference to the shareholder’s” basis, at-risk limits or passive activity limits, and add “These limitations, if applicable, are determined at the shareholder level.” Page 1 itself is walked through in lines 13 to 22 of page 1.

Two more sentences keep other income out of this line. “Line 1 shouldn’t include rental activity income (loss) or portfolio income (loss).” And before you enter income items on Schedule K, the instructions say to “reduce each item of passive investment income (within the meaning of section 1362(d)(3)(C)) by its proportionate share of the net passive income tax (Form 1120-S, page 1, line 23a)”.

Line 2: net rental real estate income (loss)

The form prints “Net rental real estate income (loss) (attach Form 8825)”. The instructions say “Enter the net income (loss) from rental real estate activities of the corporation from Form 8825.” and then “Attach the form to Form 1120-S.” The shareholder’s share lands in Schedule K-1 box 2.

Line 3: other net rental income (loss)

Line 3 has three parts. For 3a the instructions say “Enter on line 3a gross income from rental activities other than those reported on Form 8825.” For 3b: “Enter on line 3b the deductible expenses of the activity.” They add “Attach a statement of these expenses to Form 1120-S.” For 3c: “Enter on line 3c the net income (loss).” The form’s own caption for 3c is “Other net rental income (loss). Subtract line 3b from line 3a”. For background on rental treatment the instructions say “See Rental Activities, earlier, and Pub. 925, for more information on rental activities.” The shareholder’s share goes in Schedule K-1 box 3.

Line 4: interest income

The instructions open with “Enter only taxable portfolio interest on this line.” and define it: “Taxable interest is interest from all sources except interest exempt from tax and interest on tax-free covenant bonds.”

A separate paragraph covers portfolio income as a group: “Don’t reduce portfolio income by deductions allocated to it.” It also says “Interest expense allocable to portfolio income is generally investment interest expense reported on line 12c of Schedule K.” That expense is covered on the lines 11 to 13 page. The shareholder’s share of interest goes in Schedule K-1 boxes 4 to 6.

Where the number comes from

Line 1 is carried from page 1, line 22, of the same return. Line 2 comes from the corporation’s Form 8825. Lines 3a and 3b come from the corporation’s records of rental activities other than those on Form 8825, with the expenses listed on an attached statement, and 3c is the difference the form describes. Line 4 comes from the corporation’s records of taxable portfolio interest. The instructions also say to “Identify on statements attached to Schedule K-1 any additional information the shareholder needs to correctly apply the passive activity limitations.”

Where it goes next

Each line is split among the shareholders: “Enter each shareholder’s pro rata share of ordinary business income (loss) in box 1 of Schedule K-1.” Line 4 follows the same pattern: “Enter each shareholder’s pro rata share of interest income in box 4 of Schedule K-1.” The corporation-level totals are then combined on line 18, whose caption begins “Combine the total amounts on lines 1 through 10.” See lines 5 to 10 for the next income lines and lines 17 and 18 for the reconciliation. The return as a whole is explained at Form 1120-S.

Edition and line numbers

This page reads the 2025 Form 1120-S 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. The title line of the form reads “U.S. Income Tax Return for an S Corporation” and the header reads “For calendar year 2025 or tax year beginning”. Check the tax year printed on the form you are filling in and use that year’s line numbers, because a different year’s form can number or word its lines differently.

Common mistakes

• Putting rental income into line 1. The instructions say “Line 1 shouldn’t include rental activity income (loss) or portfolio income (loss).”
• Applying shareholder-level limits on the corporation’s return. The instructions say “These limitations, if applicable, are determined at the shareholder level.”
• Entering all interest on line 4. The instructions say “Enter only taxable portfolio interest on this line.”

Related: Form 1120-S, Schedule K-1 box 1, Schedule K-1 box 2, Schedule K-1 box 3, and Schedule K-1 boxes 4 to 6.

Sources

• Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/i1120s.pdf
• Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/f1120s.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.