A limited partner receives a Schedule K-1, not a Form 1099, for their share of the partnership’s income, losses, deductions, and credits. A 1099 can still show up in the mail, but only when the partnership pays you in a separate capacity: as a landlord, a lender, or an outside service provider. The K-1 is the document that carries your ownership share, and it’s the one that governs most of your tax picture.
What the K-1 Reports and Why It Isn’t a 1099
Partnerships don’t pay federal income tax. Each item of income, loss, deduction, and credit flows through to the partners, who report it on their personal returns.1Office of the Law Revision Counsel. 26 USC 702 – Income and Credits of Partner The Schedule K-1 is how the partnership tells you (and the IRS) what your slice looks like. It comes attached to the partnership’s Form 1065.2Internal Revenue Service. Schedule K-1 (Form 1065)
A 1099 does one thing: it reports a single kind of payment. Interest on a bank account. Dividends on a stock. Freelance pay. You add the number to your income and move on. The relationship behind a 1099 is transactional.
A K-1 reflects an ownership stake. Instead of one payment, it breaks your proportional share of the partnership’s finances across dozens of coded boxes: ordinary business income in one, capital gains in another, charitable contributions in another. Each item keeps the character it had inside the partnership, because the tax code treats it as if you had earned it directly.1Office of the Law Revision Counsel. 26 USC 702 – Income and Credits of Partner That’s why the treatment on your return is more involved than a 1099: different rates, different limits, different schedules.
One consequence catches new limited partners off guard. Your distributive share is taxable whether or not the partnership sent you any cash. If Box 1 shows $50,000 of ordinary business income, you owe tax on the full amount even if the partnership reinvested every dollar.3Internal Revenue Service. 2025 Partner’s Instructions for Schedule K-1 (Form 1065)
When cash does come out, it’s generally not taxed again. Distributions reduce your outside basis — your running investment balance in the partnership — because you already paid tax on the underlying income. If distributions ever exceed your basis, the excess becomes taxable gain.4Office of the Law Revision Counsel. 26 USC 731 – Extent of Recognition of Gain or Loss on Distribution
When a Limited Partner Also Gets a 1099
A limited partner can receive a 1099, but only for payments outside the partnership’s normal income allocation. The common situations:
- Services you perform for the partnership in a separate capacity, such as consulting or legal work structured as an independent contractor engagement, may be reported on Form 1099-NEC. This is distinct from a guaranteed payment for services performed as a partner, which appears on the K-1.5Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
- Rent the partnership pays you for property or equipment you own, once the total reaches $600 for the year, is reported on Form 1099-MISC. You report that rental income on Schedule E, separate from your partnership income.6Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
- Interest on a loan you made to the partnership, at $10 or more for the year, is reported on Form 1099-INT. That interest is portfolio income on your return, which matters for the loss rules discussed below.7Internal Revenue Service. About Form 1099-INT, Interest Income
In each case, you’re being paid for something other than owning a piece of the partnership. The K-1 handles ownership; the 1099 handles the transaction on the side.
K-1 Deadlines and What to Do If Yours Is Late
Most 1099 forms have to be in your hands by January 31, with a few variants due in mid-February.8Internal Revenue Service. General Instructions for Certain Information Returns (2025) K-1s work on a different clock. A calendar-year partnership must file Form 1065 and deliver K-1s to partners by March 15, and by filing Form 7004 it gets an automatic six-month extension to September 15.9Internal Revenue Service. Publication 509 (2026), Tax Calendars Many partnerships use that extension every year.
So if April 15 is approaching and your K-1 hasn’t arrived, file Form 4868 to extend your personal return to October 15. The extension buys you time to file, not time to pay. You still have to estimate what you owe and send payment by April 15 to avoid interest. Prior-year K-1s and any interim reports from the partnership are usually the best starting point for that estimate. This is where limited partners often stumble: they assume the extension covers everything, then get billed for interest on unpaid tax.
Partnerships that miss their filing deadline face penalties calculated per partner per month, for up to 12 months, with a base of $195 per partner per month that adjusts for inflation.10Office of the Law Revision Counsel. 26 USC 6698 – Failure to File Partnership Return For a partnership with many investors, that adds up quickly, which is why most general partners at least remember to file the extension on time.
Where K-1 Income Goes on Your Return
Partnership income and losses from your K-1 land on Schedule E (Form 1040), Part II, which has separate columns for passive and nonpassive amounts.11Internal Revenue Service. Schedule E (Form 1040) – Supplemental Income and Loss For a typical limited partner, the numbers go in the passive column, which triggers a whole additional set of rules.
Passive Activity and the Three Layers of Loss Limits
Income and losses from a limited partnership are almost always passive under Section 469. The statute specifically provides that a limited partner’s interest is not treated as one in which the taxpayer materially participates, except in narrow circumstances addressed by regulation.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited Passive losses can only offset passive income. If your K-1 shows a $30,000 loss and you have no passive income from other sources, you can’t deduct that loss against wages, dividends, or interest. It’s suspended and carried forward until you either have passive income to absorb it or you dispose of your entire partnership interest in a fully taxable transaction.
Before a K-1 loss even reaches the passive test, it has to clear two earlier hurdles. All three apply in order, and a loss that fails one is suspended until the failing condition is resolved.
- Basis limitation. Your share of losses cannot exceed your adjusted basis in the partnership. Basis starts with your capital contribution, rises with your share of income and additional contributions, and falls with distributions and prior losses.13Office of the Law Revision Counsel. 26 USC 705 – Determination of Basis of Partner’s Interest14Office of the Law Revision Counsel. 26 USC 704 – Partner’s Distributive Share
- At-risk limitation. You can only deduct losses to the extent you’re economically at risk. For limited partners, the at-risk amount generally includes cash contributed and a share of recourse debt, but not nonrecourse debt where you have no personal liability.15Office of the Law Revision Counsel. 26 USC 465 – Deductions Limited to Amount at Risk
- Passive activity limitation. Losses that survive the first two tests still have to find passive income to offset.12Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
Losses blocked at any stage don’t vanish. They carry forward and become deductible once the relevant limit is resolved, whether through additional contributions, future income allocations, or a full disposition. Tracking suspended amounts year over year is essential, and it’s one of the main reasons limited partners lean on a tax preparer who handles partnership returns.
Self-Employment Tax and Guaranteed Payments
One of the real tax advantages of holding a limited partnership interest is that your distributive share is exempt from self-employment tax. The statute specifically excludes a limited partner’s distributive share from self-employment earnings.16Office of the Law Revision Counsel. 26 USC 1402 – Definitions Compared to a general partner, who owes SE tax on the same income, the savings are meaningful.
There is one exception. Guaranteed payments for services are subject to self-employment tax even for a limited partner.16Office of the Law Revision Counsel. 26 USC 1402 – Definitions17Internal Revenue Service. Entities 1 These are amounts the partnership pays you for services or the use of capital, determined without regard to partnership income — think of them as salary-like.18Office of the Law Revision Counsel. 26 USC 707 – Transactions Between Partner and Partnership Guaranteed payments show up in Box 4 of your K-1, not on a 1099, even though their SE tax treatment resembles wages.
If You Think Your K-1 Is Wrong
Start with the general partner or the partnership’s tax preparer and ask for a corrected K-1. If that fails, file Form 8082, Notice of Inconsistent Treatment, with your personal return.19Internal Revenue Service. Instructions for Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) The form tells the IRS you’re reporting an item differently than the partnership reported it, and explains why. Filing it protects you from penalties that otherwise apply when your return doesn’t match the K-1. Quietly changing numbers without Form 8082 invites the IRS to adjust your return back to the K-1 figures and add tax and penalties on top.