The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla's basis is $20,000 and Lisa's basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year. Assume total assets are $680,400. Sales revenue $150,000 80,000 Cost of sales Distribution to Lisa 15,000 Depreciation expense Utilities Rent expense 20,000 14,000 18,000 6,000 12,000 Long-term capital gain Payment to Mercy Hospital for Kayla's medical expenses a. Complete whether the following items are reported on Form 1065, page 1 or on Form 1065, Page 4, Schedule K. Sales revenue Form 1065, page 1 Cost of sales Form 1065, page 1 Distribution to Lisa Form 1065, Page 4, Schedule K Depreciation expense Form 1065, page 1 Utilities Form 1065, page 1 Rent expense Form 1065, page 1 Long-term capital gain Form 1065, Page 4, Schedule K Form 1065 (2017) KL Partnership Page 4 Schedule K Partners' Distributive Share Items Total amount 1 Ordinary business income (loss) (page 1, line 22).......... 2 Net rental real estate income (loss) (attach Form 8825) ......... 3a Other gross rental income (loss)....................... b Expenses from other rental activities (attach statement) ... 3b c Other net rental income (loss). Subtract line 3b from line 3a ........ 4 Guaranteed payments ...... 5 Interest income ........... Income (Loss) 6 Dividends: a b Ordinary dividends ...... Qualified dividends ................. 6 7 Royalties ............... 8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) ......... 9a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) ....... b Collectibles (28%) gain (loss) ....... 9b c Unrecaptured section 1250 gain (attach statement)...... 9c 10 Net section 1231 gain (loss) (attach Form 4797) ..................... 11 Other income (loss) (see instructions) Type 12 Section 179 deduction (attach Form 4562) ............. 10 11 12 ctions 13a Contributions ........................................................ 13a 13a Contributions ........... 13a Deduction: b Investment interest expense . . . . . . . . . . . . . . . . . . . . . . . . .... 13b -- ---- (2) Amount 13c(2) c Section 59(e)(2) expenditures: (1) Type d Other deductions (see instructions) Type 13d 14a Net earnings (loss) from self-employment .............. 14a Employ. Self- ment b Gross farming or fishing income .............. 14b c Gross nonfarm income ....................... . 14c 15a Low-income housing credit (section 42()(5))... 15a b Low-income housing credit (other)..................... 15b c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) 15c Credits Type -- 15d d Other rental real estate credits (see instructions) e Other rental credits (see instructions) Type --- 15e f Other credits (see instructions) Type - 15f 16a Name of country or U.S. possession ---- b Gross income from all sources ................. 16b 16c c Gross income sourced at partner level ......... Foreign gross income sourced at partnership level --------- f Other 16f eign Transactions d Passive category ----- e General category Deductions allocated and apportioned at partner level g Interest expense ---------- h Other .............. 16h Deductions allocated and annortioned at partnershin level to foreign source income m Reduction in taxes available for credit (attach statement) . . 16m n Other foreign tax information (attach statement)... CU TUICICI Lan TTIIULITIALIUT alla Il SlalCITICIIL . . . . . . . . . . . . . . . . . 17a Post-1986 depreciation adjustment ........ 17a 17b b Adjusted gain or loss ..... c Depletion (other than oil and gas) ......... 17c Alternative Minimum Tax (AMT) Items d Oil, gas, and geothermal properties-gross income 17d e Oil, gas, and geothermal properties-deductions . . 17e f Other AMT items (attach statement)... 17f ULIICIPIILILEITIS alla Il SlaLEITICIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18a 18a Tax-exempt interest income ......................... b Other tax-exempt income . . c Nondeductible expenses ........ 18b 18c 19a Distributions of cash and marketable securities ..... L a UISLI IULIULIS UL Casil arlu iliai kelauit secuillies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Other Information 19a b Distributions of other property ... 19b 20a Investment income ... 20a b Investment expenses................................................ .................. 20b c Other items and amounts (attach statement)...... Form 1065 (2017) c. What information will be shown on Kayla's and Lisa's Schedules K-1, Part III? Kayla's and Lisa's Schedules K-1 will each show a $ share of partnership income (line 1) and a $ share of the partnership's long-term capital gain (line 9a). Kayla's K-1 will show a $ distribution and Lisa's K-1 will show a $ distribution (both on line 19). What items will Kayla and Lisa report on their Federal income tax returns? Kayla and Lisa will each report $ on their Schedule E and $ on Schedule D. Feedback Check My Work Incorrect d. What is each partner's basis in her partnership interest at the end of the tax year? Kayla's basis: $ Lisa's basis: $ The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kayla's basis is $20,000 and Lisa's basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year. Assume total assets are $680,400. Sales revenue $150,000 80,000 Cost of sales Distribution to Lisa 15,000 Depreciation expense Utilities Rent expense 20,000 14,000 18,000 6,000 12,000 Long-term capital gain Payment to Mercy Hospital for Kayla's medical expenses a. Complete whether the following items are reported on Form 1065, page 1 or on Form 1065, Page 4, Schedule K. Sales revenue Form 1065, page 1 Cost of sales Form 1065, page 1 Distribution to Lisa Form 1065, Page 4, Schedule K Depreciation expense Form 1065, page 1 Utilities Form 1065, page 1 Rent expense Form 1065, page 1 Long-term capital gain Form 1065, Page 4, Schedule K Form 1065 (2017) KL Partnership Page 4 Schedule K Partners' Distributive Share Items Total amount 1 Ordinary business income (loss) (page 1, line 22).......... 2 Net rental real estate income (loss) (attach Form 8825) ......... 3a Other gross rental income (loss)....................... b Expenses from other rental activities (attach statement) ... 3b c Other net rental income (loss). Subtract line 3b from line 3a ........ 4 Guaranteed payments ...... 5 Interest income ........... Income (Loss) 6 Dividends: a b Ordinary dividends ...... Qualified dividends ................. 6 7 Royalties ............... 8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) ......... 9a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) ....... b Collectibles (28%) gain (loss) ....... 9b c Unrecaptured section 1250 gain (attach statement)...... 9c 10 Net section 1231 gain (loss) (attach Form 4797) ..................... 11 Other income (loss) (see instructions) Type 12 Section 179 deduction (attach Form 4562) ............. 10 11 12 ctions 13a Contributions ........................................................ 13a 13a Contributions ........... 13a Deduction: b Investment interest expense . . . . . . . . . . . . . . . . . . . . . . . . .... 13b -- ---- (2) Amount 13c(2) c Section 59(e)(2) expenditures: (1) Type d Other deductions (see instructions) Type 13d 14a Net earnings (loss) from self-employment .............. 14a Employ. Self- ment b Gross farming or fishing income .............. 14b c Gross nonfarm income ....................... . 14c 15a Low-income housing credit (section 42()(5))... 15a b Low-income housing credit (other)..................... 15b c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) 15c Credits Type -- 15d d Other rental real estate credits (see instructions) e Other rental credits (see instructions) Type --- 15e f Other credits (see instructions) Type - 15f 16a Name of country or U.S. possession ---- b Gross income from all sources ................. 16b 16c c Gross income sourced at partner level ......... Foreign gross income sourced at partnership level --------- f Other 16f eign Transactions d Passive category ----- e General category Deductions allocated and apportioned at partner level g Interest expense ---------- h Other .............. 16h Deductions allocated and annortioned at partnershin level to foreign source income m Reduction in taxes available for credit (attach statement) . . 16m n Other foreign tax information (attach statement)... CU TUICICI Lan TTIIULITIALIUT alla Il SlalCITICIIL . . . . . . . . . . . . . . . . . 17a Post-1986 depreciation adjustment ........ 17a 17b b Adjusted gain or loss ..... c Depletion (other than oil and gas) ......... 17c Alternative Minimum Tax (AMT) Items d Oil, gas, and geothermal properties-gross income 17d e Oil, gas, and geothermal properties-deductions . . 17e f Other AMT items (attach statement)... 17f ULIICIPIILILEITIS alla Il SlaLEITICIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18a 18a Tax-exempt interest income ......................... b Other tax-exempt income . . c Nondeductible expenses ........ 18b 18c 19a Distributions of cash and marketable securities ..... L a UISLI IULIULIS UL Casil arlu iliai kelauit secuillies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Other Information 19a b Distributions of other property ... 19b 20a Investment income ... 20a b Investment expenses................................................ .................. 20b c Other items and amounts (attach statement)...... Form 1065 (2017) c. What information will be shown on Kayla's and Lisa's Schedules K-1, Part III? Kayla's and Lisa's Schedules K-1 will each show a $ share of partnership income (line 1) and a $ share of the partnership's long-term capital gain (line 9a). Kayla's K-1 will show a $ distribution and Lisa's K-1 will show a $ distribution (both on line 19). What items will Kayla and Lisa report on their Federal income tax returns? Kayla and Lisa will each report $ on their Schedule E and $ on Schedule D. Feedback Check My Work Incorrect d. What is each partner's basis in her partnership interest at the end of the tax year? Kayla's basis: $ Lisa's basis: $