Got a Schedule K-1? How to read partnership, S corporation and trust K-1s, and what to do about late K-1s, losses and foreign partners

Schedule K-1 is the statement a pass-through entity gives each owner. The entity generally doesn't pay federal income tax; it allocates its income, deductions and credits to partners, shareholders or beneficiaries, and each one reports their share on their own return. The K-1 also goes to the IRS, which matches it against your return.

• Partnership K-1s: The most common. A restaurant LLC you own with friends, a real estate fund, an EB-5 limited partnership, a publicly traded partnership (MLP) in your brokerage account: all of them issue K-1s.
• S corporation K-1s: Your own S corporation issues you a K-1, and your salary comes separately on a W-2 (see yclcpa.com/scorp).
• Trust and estate K-1s: Issued when a trust distributes income to beneficiaries. A grantor trust (many revocable living trusts, for example) generally doesn't issue K-1s; the income goes straight onto the grantor's return.
• A K-1 isn't a 1099: A 1099 reports money paid to you. A K-1 reports the income allocated to you, and you owe tax on it whether or not you received any cash.

Calendar-year partnerships and S corporations must file and issue K-1s by March 15, and trusts and estates by April 15. With extensions, partnerships and S corporations have until September 15 and trusts until September 30. If your K-1 hasn't arrived, extend your personal return to October 15 with Form 4868 and pay your estimated tax by April 15, because an extension to file isn't an extension to pay.

Description: Left to right in time order, showing the regular and extended deadlines for the three K-1s and what to do with your own return.

When	Entity / trust	What you do
2027-03-15	Forms 1065 and 1120-S and K-1s due (without extension)	Check each K-1 as it arrives; you can start filing
2027-04-15	Form 1041 and K-1s due; personal returns due	If a K-1 is missing, file Form 4868 and pay an estimate
2027-09-15	Extended deadline for Forms 1065 and 1120-S	Many fund K-1s arrive in August or September
2027-09-30	Extended deadline for Form 1041	The latest a trust K-1 should arrive
2027-10-15	Extended deadline for personal returns	File once the K-1s are in; if one is still missing, ask why

• How much to pay: Start from last year's K-1 and any estimate the fund provides (many send a "K-1 estimate" in advance). If your income was high last year, use the safe harbor rules (see yclcpa.com/1040es).
• Avoid filing on estimates: Unless you have to. If the K-1 comes in different, you'll be amending.
• Nonresidents filing Form 1040-NR: The deadline depends on whether you had U.S. wages (April 15 or June 15), and you can extend too (see yclcpa.com/1040nr).
• The entity's penalties: Late partnership and S corporation returns cost $260 per partner or shareholder per month, and a late or wrong K-1 up to $340 each (for returns and statements due in 2027). Those are the entity's penalties; they don't change your own filing deadline.

Start with three things: your share of income or loss (Boxes 1, 2 and 3), which parts are interest, dividends and capital gains (Boxes 5 to 9), and how much was distributed to you (Box 19 or Box 16 code D). Then look at the left side for your ownership percentages, share of liabilities and capital account, and whether "Foreign partner" or "Schedule K-3 is attached" is checked.

• Item J (percentages): Your profit, loss and capital percentages at the beginning and end of the year.
• Item K (liabilities): Your share of the partnership's debt, which counts toward basis. Nonrecourse debt generally isn't at risk, except qualified nonrecourse financing on real estate.
• Item L (capital account): Tax-basis beginning balance, contributions, current-year income or loss, distributions and ending balance. It isn't your basis, but it's one starting point for figuring it.
• Item H (domestic or foreign partner): If "Foreign partner" is checked, the partnership is treating you as foreign, which means withholding and a Form 8805.
• "Final K-1" and "Amended K-1" at the top: The last K-1 you'll receive, or a corrected one.

A K-1 loss has to clear four limits in order: basis (your tax investment), at-risk (what you could actually lose), passive activity (businesses you don't materially participate in) and the excess business loss limit. A loss that fails one doesn't reach the next, and it doesn't disappear; it carries forward to later years.

1. Basis: Starts with the cash and property you put in, goes up with income allocated to you, and down with distributions and losses. A partner's basis includes their share of partnership liabilities (Item K); an S corporation shareholder's doesn't include the company's bank loans and is tracked each year on Form 7203 (see yclcpa.com/scorp).
2. At-risk (Form 6198): Counts only what you could actually lose; nonrecourse loans generally don't count, though qualified nonrecourse financing on real estate does.
3. Passive activity (Form 8582): Businesses you don't materially participate in, and most rental activities, are passive. Passive losses only offset passive income; the rest carries forward or is released when you dispose of your whole interest. Limited partners are generally passive, and the $25,000 allowance for actively managed rentals doesn't apply to limited partners.
4. Excess business loss (Form 461): Business losses above $256,000 ($512,000 joint) for 2026 can't be used this year and become a net operating loss carryforward. The One, Big, Beautiful Bill made this limit permanent.

Example (hypothetical numbers, to show the method): You invested $100,000 in a real estate fund as a limited partner. Your 2026 K-1 shows a Box 2 rental real estate loss of −$15,000 (mostly depreciation), a Box 19 cash distribution of $4,000, and, in Item K, $60,000 of qualified nonrecourse financing allocated to you. You have no other passive income.

Description: Top to bottom are the four limits, with what clears and what's left at each step; the last row covers the $4,000 distribution.

Step	Calculation	Result
1. Basis	$100,000 invested + $60,000 share of debt − $4,000 distribution = $156,000	Well above $15,000, so the loss clears
2. At-risk	$100,000 + $60,000 qualified nonrecourse financing − $4,000 = $156,000	Clears
3. Passive activity	Limited partner, no other passive income	The $15,000 can't be deducted this year; carried forward on Form 8582
4. Excess business loss	No loss deducted this year	Doesn't apply
$4,000 distribution	Not income, and basis is enough	No tax; year-end basis is about $141,000

The suspended $15,000 passive loss doesn't go away. It offsets future profit from this fund or your other passive investments, and it's released when you sell your entire interest in the fund. Keep a running total every year, and hand those records over if you change CPAs.

Schedules K-2 and K-3 are where partnerships and S corporations report international tax items: foreign-source income, foreign taxes paid, a foreign partner's share of U.S. business income and more. K-2 goes to the IRS with the entity's return and K-3 goes to you. If you claim a foreign tax credit, are a foreign partner, or the fund holds foreign companies, the K-3 is often essential.

• Since the 2021 tax year: K-2 and K-3 replaced the scattered international lines on the old K-1. The K-1 has a checkbox showing whether a K-3 is attached (Box 16 on Form 1065, Box 14 on Form 1120-S).
• Who needs it: Anyone claiming a foreign tax credit on Form 1116; foreign partners filing Form 1040-NR, who use the character and source information in Part X; partners in funds holding foreign corporations or PFICs.
• The domestic filing exception: A partnership with no or very limited foreign activity and only U.S. partners can skip the K-3 if it notifies partners, at least one month before it files, that they won't get one unless they ask. If you need it, ask before that date.
• No K-3 and you need one? Ask the entity first. If there's none and you need it for a foreign tax credit, follow the IRS rules for that situation rather than estimating.

A partnership with U.S. business income and a foreign partner must withhold under section 1446 on the foreign partner's share of that income (ECTI): 37% for individuals and 21% for corporations, whether or not any cash is distributed. It pays quarterly with Form 8813, files Form 8804 for the year, and gives each foreign partner a Form 8805. The foreign partner files Form 1040-NR and uses the 8805 as a credit, getting back any excess.

• Quarterly installments: A calendar-year partnership pays on the 15th day of the 4th, 6th, 9th and 12th months with Form 8813.
• The annual return: Form 8804, with a Form 8805 for each foreign partner, is due the 15th day of the 3rd month (March 15) and can be extended. The 8805 has to reach the partner.
• Interest and dividends are separate: Interest, dividends, rents and other income that isn't business income (FDAP) allocated to a foreign partner are withheld at 30% under section 1441, reduced by treaty (generally 10% on interest and dividends under the U.S.–China treaty), and reported on Form 1042-S.
• What the foreign partner does: Get an SSN or ITIN (see yclcpa.com/itin), file Form 1040-NR with the 8805 and 1042-S, and settle up to the actual tax; state returns are often needed too.
• Selling a partnership interest: When a foreign person sells an interest in a partnership with a U.S. business, the buyer generally withholds 10% of the amount realized under section 1446(f), reported on Form 8288.

Description: The left column is the type of income, the middle is the withholding rule and forms, and the right is what the foreign partner does.

Income type	Withholding and forms	What the foreign partner does
U.S. business income (ECTI), including real estate operations and sale gains	Section 1446(a): 37% individuals, 21% corporations; Forms 8813, 8804, 8805	File Form 1040-NR and claim the 8805 credit
Interest, dividends and other FDAP income	Section 1441: 30%, reduced by treaty (generally 10% for China); Form 1042-S	Usually nothing more is owed; file Form 1040-NR to claim any excess
Sale of the partnership interest	Section 1446(f): buyer withholds 10% of the amount realized; Forms 8288 / 8288-A	File Form 1040-NR to figure the actual gain
State level (for example, North Carolina)	The partnership pays state tax for nonresident partners	Check whether that state requires its own return

The K-1s our clients see most come from three places: real estate funds or syndications, EB-5 limited partnerships, and LLCs they run with family or friends. Each has its own issues.

• Real estate funds: Usually a Box 2 rental loss (depreciation) that's passive and often can't be used for years. K-1s are often extended to September, and properties in several states mean several state K-1s and possibly several nonresident state returns. The year a property sells brings a large capital gain and depreciation recapture (Box 9c, unrecaptured section 1250 gain).
• EB-5 investments: The investor is usually a limited partner in the new commercial enterprise (NCE) and receives a Form 1065 K-1 each year, typically with modest interest income. While you're still abroad waiting for a visa and not a U.S. tax resident, the K-1 checks "Foreign partner" and the interest is withheld on at the treaty rate and reported on Form 1042-S. Once you have a green card you file as a resident on worldwide income, and the year you become a resident is split by status. Immigration matters are for your immigration attorney; we handle the tax side.
• LLCs with family or friends: A multi-member LLC is a partnership by default, and each member gets a K-1. What a working member takes out as "pay" is usually a guaranteed payment (Box 4), subject to SE tax. If a member lives in China, the partnership has foreign partner withholding to handle (above).
• Publicly traded partnerships (MLPs): Energy MLPs bought in a brokerage account issue K-1s too, often with income in several states, and part of the gain on a sale is taxed as ordinary income.
• What doesn't come on a K-1: A C corporation you own shares in sends a 1099-DIV, not a K-1, and a foreign-owned single-member LLC doesn't issue K-1s; it files a pro forma Form 1120 with Form 5472 (see yclcpa.com/5472).

When you get an "Amended K-1," it depends on which rules the entity is under. S corporations, trusts and partnerships that have elected out of the centralized partnership audit regime (BBA) issue amended K-1s, and you amend your return for that year. A BBA partnership can't issue amended prior-year K-1s; it files an administrative adjustment request instead, and either pays the tax itself or "pushes out" the adjustments to partners, who report them on a current-year return.

• S corporations and trusts: File an amended Form 1120-S or 1041 and issue amended K-1s; you amend your return on Form 1040-X.
• Small partnerships that elect out of BBA: Partnerships with 100 or fewer partners, all of them eligible partners such as individuals, C corporations and S corporations, can elect out each year and amend the same way an S corporation does.
• BBA partnerships: File an administrative adjustment request (AAR), on paper with Form 8082 or electronically with Form 1065. If the adjustments are pushed out, you receive Form 8986 and report them on Form 8978 with your return for the year you receive it, not by amending the old return.
• North Carolina: When a federal adjustment changes your NC tax, you generally have to amend your NC return within the state's deadline.

Partnerships and S corporations file in, and issue state K-1s for, each state where they do business, and you may need nonresident returns in those states. North Carolina partnerships pay NC tax for nonresident partners, and S corporations file Form NC-NA for each nonresident shareholder. Either can also elect each year to pay NC tax at the entity level (PTE).

• NC partnerships (Form D-403): Due April 15. With nonresident partners, the partnership generally computes and pays NC tax for them; if the nonresident partner is a corporation, partnership, trust, estate or exempt organization, a signed Form NC-NPA means the partnership doesn't have to pay for that partner.
• Nonresident individual partners: If your only NC income is this K-1 and the partnership paid the full tax for you, you don't need to file an NC Form D-400. If you have other NC income, file a D-400 and claim the tax the partnership paid (line 9 of the NC K-1).
• NC S corporations (Form CD-401S): Due April 15; each nonresident shareholder needs a Form NC-NA, or the company can file a composite return for nonresident shareholders.
• The NC PTE election: Partnerships (Taxed Partnerships) and S corporations (Taxed S Corporations) can elect each year on a timely return to pay NC tax at the entity level at the individual rate (3.99% for 2026), and owners deduct that income on their own NC returns. A Taxed Partnership can't pay the entity-level tax on a corporate or partnership partner's share.
• Other states: Many states allow composite returns for nonresidents or require withholding. For every state K-1 you get, check whether that state needs a return from you.

Start with which K-1 you received, whether you're a U.S. tax resident, and which states the entity operates in. The common situations are below.

• Situation A: You're in a real estate fund whose K-1 comes every September. Extend every April and pay an estimate; file when the K-1 arrives, and keep a running total of suspended passive losses.
• Situation B: You live in China and are a partner in a U.S. partnership. Check whether "Foreign partner" is checked and whether you got Forms 8805 and 1042-S; get an ITIN, file Form 1040-NR to recover excess withholding, and file state returns as needed.
• Situation C: You're an EB-5 investor who got a green card this year. It may be a dual-status year, with K-1 income split before and after you became a resident; after that you report worldwide income, and your accounts abroad bring FBAR and Form 8938 into play.
• Situation D: You run an LLC with family or friends and work in it. What you take out is usually a guaranteed payment, subject to SE tax; if a member lives in China, the partnership has foreign partner withholding to handle. If the profit is steady, it may be worth looking at an S election.
• Situation E: You received an amended K-1 or a Form 8986. An amended K-1 usually means amending that year's return; a Form 8986 is reported on Form 8978 with the return for the year you receive it. Confirm which rules the entity follows first.