Worksheet for Figuring Net Income

Page 31 of 43

Instructions for Form 1065

15:13 - 26-AUG-2008

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

If you are reporting only one type of
deduction under code V, enter code V with
an asterisk (V*) and the dollar amount in the
entry space in box 13 and attach a
statement that shows the box number, code,
and type of deduction. If you are reporting
multiple types of deductions under code V,
enter the code with an asterisk (V*), enter
“STMT” in the dollar amount entry space in
box 13, and attach a statement that shows
the box number, code, and the dollar
amount of each type of deduction.
If the partnership has more than one
trade or business activity, identify on an
attachment to Schedule K-1 the amount for
each separate activity. See Passive Activity
Reporting Requirements on page 13.

Self-Employment
Note. If the partnership is an options dealer
or a commodities dealer, see section 1402(i)
before completing lines 14a, 14b, and 14c,
to determine the amount of any adjustment
that may have to be made to the amounts
shown on theWorksheet for Figuring Net
Earnings (Loss) From Self-Employment
below. If the partnership is engaged solely in
the operation of a group investment
program, earnings from the operation are
not self-employment earnings for either
general or limited partners.
General partners. General partners’ net
earnings (loss) from self-employment do not
include:
• Dividends on any shares of stock and
interest on any bonds, debentures, notes,
etc., unless the dividends or interest are
received in the course of a trade or
business, such as a dealer in stocks or
securities or interest on notes or accounts
receivable.
• Rentals from real estate, except rentals of
real estate held for sale to customers in the
course of a trade or business as a real
estate dealer or payments for rooms or
space when significant services are
provided.

• Royalty income, except royalty income
received in the course of a trade or
business.
See the instructions for Schedule SE
(Form 1040), Self-Employment Tax, for
more information.
Limited partners. Generally, a limited
partner’s share of partnership income (loss)
is not included in net earnings (loss) from
self-employment. Limited partners treat as
self-employment earnings only guaranteed
payments for services they actually
rendered to, or on behalf of, the partnership
to the extent that those payments are
payment for those services.
Line 14a. Net Earnings (Loss) From
Self-Employment
Schedule K. Enter on line 14a the amount
from line 5 of the worksheet.
Schedule K-1. Do not complete this line
for any partner that is an estate, trust,
corporation, exempt organization, or
individual retirement arrangement (IRA).
Enter in box 14 of Schedule K-1 each
individual general partner’s share of the
amount shown on line 5 of the worksheet
and each individual limited partner’s share
of the amount shown on line 4c of the
worksheet, using code A.

Line 14b. Gross Farming or
Fishing Income
Enter on line 14b the partnership’s gross
farming or fishing income from
self-employment. Individual partners need
this amount to figure net earnings from
self-employment under the farm optional
method in Section B, Part II of Schedule SE
(Form 1040). Enter each individual partner’s
distributive share in box 14 of Schedule K-1
using code B.

Line 14c. Gross Nonfarm Income
Enter on line 14c the partnership’s gross
nonfarm income from self-employment.
Individual partners need this amount to
figure net earnings from self-employment

under the nonfarm optional method in
Section B, Part II of Schedule SE (Form
1040). Enter each individual partner’s share
in box 14 of Schedule K-1 using code C.

Worksheet Instructions
Line 1b. Include on line 1b any part of the
net income (loss) from rental real estate
activities from Schedule K, line 2, that is
from:
1. Rentals of real estate held for sale to
customers in the course of a trade or
business as a real estate dealer or
2. Rentals for which services were
rendered to the occupants (other than
services usually or customarily rendered for
the rental of space for occupancy only). The
supplying of maid service is such a service;
but the furnishing of heat and light, the
cleaning of public entrances, exits, stairways
and lobbies, trash collection, etc., are not
considered services rendered to the
occupants.
Lines 3b and 4b. Allocate the amounts on
these lines in the same way Form 1065,
page 1, line 22, is allocated to these
particular partners.
Line 4a. Include in the amount on line 4a
any guaranteed payments to partners
reported on Schedule K, line 4, and
Schedule K-1, box 4, and derived from a
trade or business as defined in section
1402(c). Also include other ordinary
business income and expense items (other
than expense items subject to separate
limitations at the partner level, such as the
section 179 expense deduction) reported on
Schedules K and K-1 that are used to figure
self-employment earnings under section
1402.

Credits
Note. Do not attach Form 3800, General
Business Credit, to Form 1065.

Worksheet for Figuring Net Earnings (Loss) From Self-Employment
1a Ordinary business income (loss) (Schedule K, line 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1a

b Net income (loss) from certain rental real estate activities (see instructions) . . . . . . . . . . . . . . . . .

1b

c Other net rental income (loss) (Schedule K, line 3c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1c

d Net loss from Form 4797, Part II, line 17, included on line 1a above. Enter as a positive amount . . .

1d

e Combine lines 1a through 1d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1e

2

Net gain from Form 4797, Part II, line 17, included on line 1a above . . . . . . . . . . . . . . . . . . . . . .

3a Subtract line 2 from line 1e. If line 1e is a loss, increase the loss on line 1e by the amount on line 2
b Part of line 3a allocated to limited partners, estates, trusts, corporations, exempt organizations, and
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2
3a
3b

c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each individual
general partner’s share in box 14 of Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4a Guaranteed payments to partners (Schedule K, line 4) derived from a trade or business as defined in
section 1402(c) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4a

b Part of line 4a allocated to individual limited partners for other than services and to estates, trusts,
corporations, exempt organizations, and IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4b

c Subtract line 4b from line 4a. Include each individual general partner’s share and each individual limited partner’s share in box
14 of Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5

Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 14a . . . . . . . . . . . .

Instructions for Form 1065

-31-

3c

4c
5