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How to use special allocations for Form 1065 in ProConnect Tax

by ProConnect Tax Online Updated 3 months ago

On Form 1065, US Return of Partnership Income, all distributions to Schedule K-1 are based on the partner's percentage. If the amounts on the K-1 need to be different from the calculated percentage amounts, the special allocations must be used.

Using special allocations

  1. Make entries for the total amounts in the appropriate Input Return screen. 
    • For example, enter Guaranteed Payments in the Ordinary Income Deductions screen .
  2. From the Special Allocations tab, select the correct Amounts to Allocate and enter the amounts or percentages to allocate.
    A video clip showing the section of Special Allocation at the top of the screen, then choosing the input to specially allocate from the left column under Amounts to Allocate, then enter the amounts or percentages to allocate.

Additional information

  • Amounts must be entered in the input screens before allocating from the special allocation input screen. If you make entries here first, ProConnect Tax won't carry those amounts back to Form 1065.
  • Allocate the full amounts. Any remainder will flow to the rounding partner's K-1.

When you allocate under Special Allocations, and you also have state information with amounts that are different from federal, you will have to separately specially allocate those as well otherwise the state will use the partner percentages on Partner Percentages.  Each state will vary on what can be allocated depending on what the Schedule K-1 or K-1 equivalent is reporting.

  1. Navigate to Special Allocations.
  2. Select the state you wish to allocate amounts for from the drop down menu.
  3. Select the area of income you wish to allocate for from.
  4. Select the partner you wish to allocate to.
  5. Enter the desired amount in the field labeled Allocation Amount.
  6. Repeat steps 2 through 5 as needed.
  • Line 20 Code N will only generate for tax years beginning after November 12, 2020.
  • Amounts for Line 20 Code N will generate automatically based on your excess business interest entries in income screens.
  • If not splitting by profit sharing percentage use Special Allocations, to allocate the amounts. The amounts will be found under the Section list under Other (Sch. K-1, Box 20) > Business Int. Exp. (for TY beginning after Nov. 12, 2020).

Schedule K-1 instructions for Code N. Business interest expense. For tax years beginning after November 12, 2020, the partnership will report your share of the partnership's deductible business interest expense for inclusion in the separate loss class for computing any basis limitation (defined in section 704(d), Regulation section 1.163(j)-6(h)). This information is necessary if your losses are limited under section 704(d). Deductible business interest expense is reported elsewhere on Schedule K-1 and the total amount is reported here for information only and was already included as a deduction on another line of your schedule K-1. Included in the code N information is a statement providing the allocation of the business interest expense already deducted by the partnership by line number in the Schedule K-1.

  • Investment interest expenses can be entered in:
    • Other Schedule K Items in the field " Investment interest expense"
    • Passthrough K-1's in the field " Investment interest expense (H)"
  • If the amount for Box 20, code N is to be allocated differently than the profit sharing percentage in Partner Percentage, navigate to the Other Items section of Special Allocations to allocate.

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ProConnect Tax

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