Updated October 16, 2026. Quick answer: Box 10 of Schedule K-1 (Form 1065) is your share of the partnership’s net section 1231 gain or loss. The 2025 partner instructions say a loss that isn’t passive, or a gain, goes in column (g) of Form 4797, line 2, with “From Schedule K-1 (Form 1065)” written across the other columns. The amount is generally passive if it comes from a rental activity or a business in which you didn’t materially participate.
Sales of business property (Form 4797), passive activity losses (Form 8582) and depreciation (Form 4562) for 2025, read line by line: Form 4797 line 8, Form 4797 line 10 and Form 4797 lines 13 to 18.
Schedule D and Schedule E (Form 1040) for 2025, read line by line: Schedule D lines 11 and 12 and Schedule D line 18.
What box 10 reports
Part III box 10 carries the label “Net section 1231 gain (loss)”.
“The partnership uses Schedule K-1 to report your share of the partnership’s income, deductions, credits, etc.” “Keep it for your records.” “Don’t file it with your tax return unless you’re specifically required to do so.”
“Although the partnership generally isn’t subject to income tax, you may be liable for tax on your share of the partnership income, whether or not distributed.” “Include your share on your tax return if a return is required.”
This page covers one box. The full walk through every box on the schedule is on the Schedule K-1 (Form 1065) boxes page.
When box 10 is passive
“The amount in box 10 is generally passive if it’s from a:” “Rental activity, or” “Trade or business activity in which you didn’t materially participate.” “However, an amount from a rental real estate activity isn’t from a passive activity if you were a real estate professional (defined earlier) and you materially participated in the activity.”
The instructions define the professional status in two conditions, both required: “You were a real estate professional only if you met both of the following conditions.”
| Condition | As printed in the instructions |
|---|---|
| 1 | “More than half of the personal services you performed in trades or businesses were performed in real property trades or businesses in which you materially participated.” |
| 2 | “You performed more than 750 hours of services in real property trades or businesses in which you materially participated.” |
The test uses the partnership’s year. “All determinations of material participation are based on your participation during the partnership’s tax year.” “If you’re married filing jointly, either you or your spouse must separately meet both (a) and (b) of the above conditions, without taking into account services performed by the other spouse.”
Where box 10 goes on your return
| Situation | What the instructions say |
|---|---|
| Loss that is not from a passive activity, or a gain | “report it in column (g) of Form 4797, line 2.” |
| Columns (b) through (f) of Form 4797, line 2 | “Instead, enter “From Schedule K-1 (Form 1065)” across these columns.” |
| Loss from a passive activity | “Report the loss following the Instructions for Form 8582 to figure how much of the loss is allowed on Form 4797.” |
| Box in item D checked (publicly traded partnership) | “report the loss following the rules for PTPs under Publicly traded partnerships, earlier.” |
Form 4797 is explained on the Form 4797 page. Passive losses are limited through Form 8582, and the instructions point to “Passive Loss Limitations in the Instructions for Form 4797.”
“If you’re an individual and the passive activity rules don’t apply to the amounts shown on your Schedule K-1, take the amounts shown and enter them on the appropriate lines of your tax return.” “If you aren’t an individual, report the amounts in each box as instructed on your tax return.”
“If the partnership reports a section 743(b) adjustment to partnership items, report these adjustments as separate items on Form 1040 or 1040-SR in accordance with the reporting instructions for the partnership item being adjusted.”
The year to report in depends on the partnership’s year end. “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.” “if the partnership’s tax year ends in February 2026, report the amounts on your 2026 tax return.”
The attached statement and the K-3 caution
“If the partnership had net section 1231 gain (loss) from more than one activity, it’ll attach a statement that will identify the section 1231 gain (loss) from each activity.” “If you have any foreign source net section 1231 gain (loss), see the Partner’s Instructions for Schedule K-3 for additional information.”
In the general passive activity discussion the instructions say “If the partnership had more than one activity, it’ll attach a statement to your Schedule K-1 that identifies each activity”, and “Box 23 of Schedule K-1, Part III, will be checked when a statement is attached.”
The limits that apply before it reaches the return
“There are potential limitations on partnership losses that you can deduct on your return.” The order is stated too: “the basis limitations, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.”
Basis comes first. “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.” “Any losses and deductions not allowed can be carried forward.” Tracking the figure falls to you: “It’s the partner’s responsibility to track and maintain the information necessary to figure their adjusted basis in the partnership”. The capital account on the schedule does not substitute: “that information is based on the partnership’s books and records and can’t be used to figure the partner’s adjusted basis.”
The at-risk rules come next. “Generally, if you have (a) a loss or other deduction from any activity carried on as a trade or business or for the production of income by the partnership, and (b) amounts in the activity for which you aren’t at risk, you’ll have to complete Form 6198, At-Risk Limitations, to figure your allowable loss for the activity.” The form is explained on the Form 6198 page. “The at-risk rules generally limit the amount of loss and other deductions that you can claim to the amount you could actually lose in the activity.”
Then the passive rules. “If you have an overall loss (the excess of deductions and losses, including any prior-year unallowed loss, over income) or credits from a passive activity, report the income, deductions, losses, and credits from all passive activities using the Instructions for Form 8582”. Publicly traded partnerships are separate: “a net passive loss from a PTP may not be deducted from other passive income.”
The last limit applies to business losses. “Your distributive share of losses attributable to all of the partnership’s trades or businesses may be limited under section 461(l).” “See Form 461, Limitation on Business Losses, and its instructions for more information.”
Corrections and matching
If a figure on the schedule looks wrong, the instructions give one route. “If you believe the partnership has made an error on your Schedule K-1, notify the partnership and ask for a corrected Schedule K-1.” “Don’t change any items on your copy of Schedule K-1.”
Items must also match what the partnership reported. “you must report the items shown on your Schedule K-1 (and any attached statements) the same way that the partnership treated the items on its return.” “you must file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with your original or amended return”.
“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) together with 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, because a later revision can change the box layout, the codes and the reporting lines.
Common mistakes
- Filling in columns (b) through (f) of Form 4797, line 2. The instructions say not to complete them and to enter “From Schedule K-1 (Form 1065)” across the columns instead.
- Treating a rental real estate section 1231 amount as non-passive without meeting both real estate professional conditions. The instructions require both the more-than-half test and the 750 hours test, plus material participation in the activity.
- Taking a passive section 1231 loss in full. The instructions say to follow the Instructions for Form 8582 to figure how much of the loss is allowed on Form 4797.
Related: Form 4797, Form 8582 passive losses, depreciation recapture, and Schedule E (Form 1040).
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Talk through partnership property gains with an advisor
For U.S. investors with $250,000 or more in investable assets. WiserAdvisor is an independent service matching you with 2 to 3 vetted advisers. Its form asks for your ZIP code and answers to a few questions; a match is not guaranteed.
Free to request, with no obligation to hire. By submitting, you consent to calls, texts and emails from WiserAdvisor and up to three advisers. Advisers pay for introductions.
Clear Money Guide may earn a referral payment for a qualifying completed form. An introduction is not a Clear Money Guide recommendation.
Opens on WiserAdvisor’s site in a new tab.
advisor for partnership property sale taxes
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment for a qualifying submitted form, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 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.