Updated October 16, 2026. Quick answer: Code Z in box 20 of Schedule K-1 (Form 1065) is the section 199A information a partner needs for the qualified business income deduction. The 2025 instructions say a partner may be allowed a deduction of up to 20% of net qualified business income plus 20% of qualified REIT dividends and qualified PTP income, and that the partnership provides the figures. Form 8995 or Form 8995-A does the computation.
More IRS forms for employers and business owners, read line by line: Form 8995-A Schedule A and Form 8995-A Schedule D.
Related reading on this site: Form 8995-A QBI deduction.
What code Z reports
The instructions open the code with the deduction itself: “Generally, you may be allowed a deduction of up to 20% of your net qualified business income (QBI) plus 20% of your qualified REIT dividends, also known as section 199A dividends, and qualified PTP income from your partnership.” “The partnership will provide the information you need to figure your deduction.” 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.
Box 20 is a coded box. “In box 11, boxes 13 through 15, and boxes 17 through 20, the partnership will identify each item by entering a code in the column to the left of the dollar amount entry space.” When a code needs more than one number, the partnership attaches a statement: “The partnership will enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each item for which it has attached a statement providing additional information.” “For those informational items that can’t be reported as a single dollar amount, the partnership will enter an asterisk (*) in the left column and enter “STMT” in the dollar amount entry space to indicate the information is provided on an attached statement.”
Form 8995 or Form 8995-A
The instructions choose the form by a three-part test. “Use Form 8995, Qualified Business Income Deduction Simplified Computation, if all of the following apply.” The three conditions are in the table, and the form that applies if any one fails follows it.
| Test | As printed |
|---|---|
| 1 | “You have QBI, section 199A dividends, or PTP income (defined below).” |
| 2 | “Your 2025 taxable income before the QBI deduction is equal to or less than $197,300 ($394,600 if married filing jointly).” |
| 3 | “You aren’t a patron in a specified agricultural or horticultural cooperative.” |
“Use Form 8995-A, Qualified Business Income Deduction, if you don’t meet all three of the above requirements.” “Use the information provided by your partnership to complete the appropriate form listed above.” The Form 8995 line-by-line is on the Form 8995 page, and the income thresholds are tracked on the QBI deduction thresholds page.
The items on the statement
The K-1 itself shows only a code. The detail is in the attached statement, and the instructions name its main pieces. The table lists them.
| Statement item | As printed in the instructions |
|---|---|
| QBI and qualified PTP items | “The amounts reported to you reflect your distributive share of items from the partnership’s trade(s), business(es), or aggregation(s), and may include items that aren’t includible in your calculation of the QBI deduction.” |
| W-2 wages | “The amounts reported reflect your distributive share of the partnership’s W-2 wages allocable to the QBI of each qualified trade, business, or aggregation.” |
| UBIA of qualified property | “The amounts reported reflect your distributive share of the partnership’s UBIA of qualified property of each qualified trade, business, or aggregation.” |
| Section 199A dividends | “The amount reported reflects your distributive share of the partnership’s net section 199A dividends.” |
The instructions define the unadjusted basis item by its short name: “Unadjusted basis immediately after acquisition (UBIA) of qualified property.” For each of these items the instructions point to the same place: “See the instructions for Form 8995 or 8995-A, as appropriate.”
Partner-specific determinations
The partnership’s number is a starting point. “When determining QBI or qualified PTP income, you must include only those items that are qualified items of income, gain, deduction, and loss included or allowed in determining taxable income for the tax year.” “To determine your QBI or your qualified PTP income amounts and for information on where to report them, see the instructions for Form 8995 or 8995-A, as appropriate.”
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.”
Patrons of agricultural or horticultural cooperatives
A cooperative patron has a fixed route. “If the partnership was a patron of an agricultural or horticultural cooperative (specified cooperative), you must use Form 8995-A to figure your QBI deduction.” “You must also complete Schedule D (Form 8995-A), Special Rules for Patrons of Agricultural or Horticultural Cooperatives, to determine your patron reduction.”
The statement then carries three more items for that case, each with its own pointer: “QBI items allocable to qualified payments from specified cooperatives subject to partner-specific determinations.” “W-2 wages allocable to qualified payments from specified cooperatives.” “Section 199A(g) deduction from specified cooperatives.” “See the Instructions for Form 8995-A.” Farm partnerships can read more at farm LLC or partnership basics.
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
- Defaulting to Form 8995 because the K-1 looks simple. The instructions say to use Form 8995 only if all three conditions apply, and to use Form 8995-A if you don’t meet all three.
- Entering the partnership’s amounts without screening them. The instructions say the amounts may include items that aren’t includible in the partner’s QBI calculation, and the partner must include only qualified items included or allowed in determining taxable income.
- Using the simplified form for a cooperative patron. The instructions say that if the partnership was a patron of a specified cooperative, the partner must use Form 8995-A.
Related: Form 8995 qualified business income deduction, QBI deduction thresholds, Schedule K-1 (Form 1065) boxes explained, Schedule E (Form 1040), and farm LLC or partnership basics.
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.