K-1 & Flow-Through Basis Position
Portfolio Summary
K-1 Interests
How to Read This Workpaper
The Three Tests, in Plain English what each number on your statement means
When you invest in a partnership, LLC, or syndication, the tax law limits how much of the partnership's losses you can actually deduct in a given year. A loss has to pass three tests, in order, before it reaches your return. This workpaper tracks where you stand on each one.
Outside Basis Test 1 · §704(d)
What it is: your tax investment in the deal — what you put in, plus your share of the partnership's debt and accumulated profits, minus what you've taken out and the losses you've already deducted.
The risk: when it reaches zero, distributions stop being tax-free. Every dollar you take out beyond that point is taxed as a capital gain — even though the cash feels identical to every other distribution.
The opportunity: contributing capital, earning allocated income, or taking on qualifying debt all rebuild basis and unlock losses that were waiting on the sidelines.
At-Risk Amount Test 2 · §465
What it is: the slice of your basis you could genuinely lose if the deal went to zero — essentially your money plus debt you're personally responsible for.
The risk: losses funded by debt you're not on the hook for don't count here, so they get held back even if you have plenty of outside basis. If this figure ever goes negative, the law claws back losses you already deducted (§465(e)).
The opportunity: for real estate, qualified mortgage financing is a special exception that does count toward at-risk — which is why property deals can keep deducting losses where other investments couldn't.
Passive Activity Test 3 · §469
What it is: if you're a hands-off investor (a typical limited partner), your losses are "passive" and can only offset other passive income — not your salary, business income, or portfolio gains.
The risk: passive losses can pile up unused for years if the investment isn't generating passive income to absorb them.
The opportunity: these suspended losses are released in full when you fully sell the investment (§469(g)) — so they become a deliberate offset against the gain in your exit year. Timing a sale, or grouping activities, can turn stockpiled losses into real tax savings.
Phantom Income the exposure to watch
What it is: a tax bill with no cash attached. It happens when the partnership reports income you're taxed on but didn't receive, when debt gets paid down (which the law treats like a distribution to you), or when distributions outrun your basis.
Why we track it: the goal of this workpaper is to see these years coming — so the tax is planned for in advance instead of being a surprise at filing.
Reading Each Interest the table on each page
For each investment, the printed table shows the calculated result for every year: how much basis and at-risk amount remain, how much loss was allowed through each of the three tests, how much is suspended (carried forward), and any phantom-income gain. The shaded paragraph above each table is a plain-language reading of where that investment stands today.
Preparer Reference — Data Entry & Mechanics staff only
On screen, enter each K-1 box exactly as shown, including the sign. The ± columns (Box 1, 2, 8, 9a, 10) take negatives for losses; deduction boxes (12, 13, 18c) and Box 19 distributions are entered positive. Hover the ? on any on-screen column for its citation. The three-gate waterfall runs §704(d) → §465 → §469; each suspended bucket releases on its own event (basis rebuild, at-risk rebuild, passive income / §469(g) disposition).
Out of Scope — Verify at the 1040 Level staff only
- §469 grouping across activities (Reg §1.469-4) — cross-K-1 passive netting is a 1040-level task; this tool reports per-interest suspended §469.
- $25K rental allowance (§469(i)), §163(j) excess business interest, §199A QBI, and Box 20 codes — outside basis-tracking scope.
- Charitable Box 13A reduces basis here, but its AGI limits are separate. Stuffing / §704(d) survival on transfer — verify manually.
Single-row check: BOY basis + contributions + income + debt-share increases − distributions − debt-share decreases − nondeductibles − allowed losses = EOY basis.