How to Read a Schedule K-1 (Form 1065) – Simple Tax Guide

Are you holding your first K-1 tax form and wondering, “What does all this mean?”

You’re not alone—and the good news is, this guide will walk you through exactly how to read a K-1, what all the confusing boxes mean, and how this document can actually help you reduce your tax liability.

👉 Want the visual version instead? Watch this video…

Whether you’re a passive investor, business owner, or individual partner in a pass-through entity, understanding this form is key to making smarter business decisions and keeping more of your money during tax season.

Let’s break it all down.

What Is a Schedule K-1 Form?

The Schedule K-1 tax form is an important tax document sent to individual taxpayers who are involved in a business partnership, limited partnership, S corporation, or trust. It’s the government’s way of tracking your share of the income, losses, tax deductions, and credits from that business.

Instead of getting a W-2 like an employee, or a 1099 as a contractor, you’ll get a K-1 if you have an ownership stake in a pass-through entity—an entity that doesn’t pay taxes at the entity level but instead “passes through” the tax responsibilities to individual partners.

This form helps the IRS know how much of the entity’s income or loss shows up on your personal tax return.

The 3 Main Types of Entities That Send K-1s

1. Partnerships (File IRS Form 1065 – U.S. Return of Partnership Income)

2. S Corporations (File IRS Form 1120-S)

3. Trusts and Estates (Use Form 1041)

Why the K-1 Matters for You

Your K-1 form shows your individual’s share of:

All of this helps determine how much taxable income you must report on your individual tax return.

When Do You Receive a K-1?

The due date for partnerships and S corporations to file their tax returns is usually March 15th each year (unless it’s a fiscal year business). So you’ll often receive your K-1 around that time or shortly afterward.

It’s important to wait for your K-1 before filing taxes—if you file early and forget to include it, you may have to amend your return.

How to Read a K-1 (Line by Line)

Let’s walk through the detailed information you’ll see on a K-1 form.

Part I – Information About the Partnership

This includes:

• The partnership’s name, address, and EIN

• What kind of entity it is (usually a limited partnership or LLC taxed as a partnership)

• The IRS Form 1065 they filed

• Their fiscal year or calendar year tax period

Part II – Information About the Partner

This is your section and includes:

• Your name, address, and social security number

• Your ownership percentage in the partnership

• Whether you’re a general partner or limited partner

• The type of partner you are (domestic or foreign)

• Your capital account activity: how much you invested, earned, and what remains

Your capital account can go negative and still be perfectly normal, especially if your share of the entity’s losses or tax deductions (like depreciation) was larger than your initial investment.

Part III – Partner’s Share of Current Year Income, Deductions, Credits, and Other Items

This is where the real value comes in. Here’s what you’ll find:

Box 1 – Ordinary Business Income (Loss)
This is income from the partnership’s core operations. In real estate syndications, this is often zero, since most of the income is classified as rental income.

Box 2 – Net Rental Real Estate Income (Loss)
If the partnership owns real estate, this is likely where your rental income or paper losses (from depreciation) are reported.

Box 5 – Interest Income
This includes income earned from reserves sitting in a bank account or bond interest.

Box 6 – Dividends (Including Ordinary Dividends)
If the partnership invested in dividend-paying assets, you might see those listed here.

Boxes 8 & 9 – Short-Term and Long-Term Capital Gains
If the partnership sold assets (like property or stocks), you’ll see those gains here. Long-term capital gains usually receive better tax treatment.

Box 11 – Other Income (Loss)
This box can include guaranteed payments, management fees, or other forms of partner compensation.

Box 13 – Tax Deductions and Credits
This includes your share of things like:

Box 16 – Foreign Transactions
Useful if the partnership has overseas income or you’re dealing with foreign tax credits.

Box 20 – Other Information
This is where some of the most valuable additional information is listed, including:

Always check this section carefully. A good tax advisor or tax preparer will know how to plug this into your return properly.

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Real-Life Example: How Depreciation Creates “Losses” That Save You Money

Let’s say you invested $100,000 into a real estate syndication and your K-1 shows a net rental loss of $105,920.

That might look scary—but in reality, it’s mostly depreciation, a non-cash expense that reduces your taxable income.

You may have even received cash flow during the year, but the IRS sees it as a “loss,” which means you pay no taxes on that income (at least for now).

That loss can be used to offset other passive income like:

And if you don’t have any passive income this year? That “loss” rolls forward to future tax years—indefinitely.

Can a K-1 Loss Reduce Your W-2 Income?

This is a common question—and here’s the truth:

No, not unless you (or your spouse) qualify as a real estate professional.

If you meet the IRS guidelines (typically 750+ hours per year spent actively managing property), your passive losses may be used to offset active income, like:

That’s how many high-income professionals legally reduce their taxes by tens of thousands of dollars.

Related: Can K1 Losses Offset Your W2 Income?

What If You’re Just Starting Out?

If this is your first year investing and your K-1 shows a large passive loss—great! That loss can offset future income from:

Your CPA should track this and apply it when it makes the most sense.

What Should You Do with Your K-1 Form?

1. Review it carefully—especially Boxes 1–20 and the capital account section

2. Give it to your CPA or tax professional along with any other tax documents

3. Don’t file early—wait until you receive all K-1s to avoid amending your return

4. Use the IRS website or Schedule K-1 instructions if you want more technical detail

Bonus Tip: Track Past Performance and Distributions

Keep a record of:

This will help you and your tax advisor optimize your strategy year after year.

Wrapping It All Up

Knowing how to read a K-1 is one of the most powerful tools in your investing toolbox. It gives you:

• A better understanding of your share of income

• Valuable tax deductions

• A chance to reduce your personal income tax return

• An edge in long-term tax planning

And even though it may seem complex at first, you don’t have to figure it out alone. A qualified tax professional or CPA experienced in pass-through entities can help you make the most of it.

Whether you’re new to real estate investing or just looking to understand your taxes better, learning to read your K-1 is one of the best moves you can make toward financial clarity—and more importantly, financial freedom.