The IRS Partner's Adjusted Basis Worksheet is how you calculate your real MLP cost basis — the number your broker gets wrong. This page walks through every line with the K-1 box that feeds it, plus a filled-out EPD example you can follow.
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Open K-1 Basis Tracker (free)The Partner's Adjusted Basis Worksheet is the IRS-required calculation that determines your real cost basis in an MLP position. It's found in the Partner's Instructions for Schedule K-1 (Form 1065), and it must be completed every year you hold MLP units.
Your broker doesn't do this. Your broker tracks your original purchase price and never adjusts it for K-1 activity. That's why your broker's basis is wrong — and why this worksheet exists. The same worksheet governs K-1s from private partnerships — and if years were never tracked, the history must be rebuilt through a private partnership basis reconstruction.
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Filled-Out Example: EPD Position
Throughout this guide, we'll use a concrete example: 500 units of Enterprise Products (EPD) purchased at $26/unit ($13,000 total), in their second year of ownership with beginning basis of $11,980 (reflecting first-year erosion). Each line references the actual K-1 box where the number comes from.
Line 1: Basis at Beginning of Tax Year
$11,980
Source: Last year's Line 14 (or Line 18 if at-risk applies). For the first year, this is your purchase price plus any liability share assumed at acquisition.
For our EPD example: $11,980 is the ending basis from year 1. The original $13,000 purchase price was reduced by year 1 distributions and K-1 adjustments. Line 1 can never be less than zero.
Line 2: Contributions During the Year (IRC §722)
$0
Source: Any additional capital you contributed to the partnership during the year. For MLP investors, this is almost always $0 — you buy units on the open market, not through direct partnership contributions. DRIP reinvestments are new purchases, not contributions, and create separate tax lots.
Line 3: Increased Share of Partnership Liabilities (IRC §752(a))
$350
Source: K-1 Item K — compare ending liabilities to beginning liabilities. If ending > beginning, the increase goes here. If ending < beginning, the decrease goes to Line 9 instead.
For our EPD example: EPD's share of nonrecourse liabilities increased $0.70/unit × 500 units = $350. This is common when the MLP issues new debt or refinances. Liability increases are treated as deemed cash contributions — they increase your basis.
This is one of the most misunderstood items. Many investors skip it because it doesn't appear in the numbered boxes — it's in Item K at the bottom of page 1.
Lines 4a through 4o capture your share of partnership income and gains. The critical rule: only positive amounts go here. Negative amounts (losses) go to Line 11.
Line 4a: Ordinary Business Income — K-1 Box 1
$0
If Box 1 is positive, enter it here. If Box 1 is negative (loss), enter $0 here and the absolute value goes to Line 11. For most midstream MLPs, Box 1 is negative due to depreciation — so Line 4a is usually $0 for EPD, ET, MPLX, etc.
EPD example: Box 1 shows ($480) — that's a loss. Line 4a = $0. The $480 goes to Line 11.
Lines 4b-4j: Other Income Items
4b: Net rental real estate income (Box 2) — usually $0 for midstream MLPs
4c: Other net rental income (Box 3) — usually $0
4d: Interest income (Box 5) — occasionally small amounts for MLPs with cash reserves
4e: Dividend income (Box 6a) — rare for midstream MLPs
4f: Royalties (Box 7) — $0 for pipeline/midstream, may apply to upstream MLPs
4g: Net short-term capital gain (Box 8) — occasionally from asset sales
4h: Net long-term capital gain (Box 9a) — occasionally from asset sales
4i: §1231 gain (Box 10) — from property dispositions, sometimes significant
4j: Other income (Box 11) — catch-all for miscellaneous items
EPD example: Lines 4b-4j are all $0 for a typical year. Most of these only populate in unusual years (asset sales, hedging gains). Don't skip checking them — a surprise gain in Box 9a or Box 10 affects your basis.
Lines 4k-4n: Special Items
4k: §179 deduction (Box 12) — always reduces basis, goes to Line 11
4l: Other deductions (Box 13) — always reduces basis, goes to Line 11
4m: Tax-exempt income (Box 18A) — increases basis even though not taxable
4n: BIE addback (Box 20, Code N) — enter as a positive. Restores gross pre-BIE income; corresponding deduction happens later on Line 15q.
EPD example: Box 18A shows $25 of tax-exempt interest income. Line 4m = $25. Lines 4k, 4l, 4n = $0.
Line 4n in depth: the BIE addback
Line 4n is mechanical. The partnership has already netted Business Interest Expense against positive ordinary income inside Box 1, 2, or 3 before reporting BIE separately as Box 20 Code N. Line 4n restores the gross positive-income picture so that the income items on lines 4a–4n reflect income before BIE was deducted from it. Per the IRS instructions: enter the lesser of (a) BIE in Box 20N, or (b) the amount by which BIE reduced positive ordinary income in Box 1, 2, or 3.
The corresponding deduction happens later, on Line 15q, in the BIE loss class under Reg §1.163(j)-6(h). Box 20N nets to zero on the worksheet — the IRS enters the full amount on 15q while excluding BIE from the loss lines (15a-15c); this tool reaches the identical ending basis by carrying the Line 4n capped amount on both lines. Per the IRS Code N definition, the amount is "reported here for information only and was already included as a deduction on another line of your Schedule K-1." Undeducted business interest reduces basis only as excess business interest expense (Box 13 code K). See the worked BIE example below with engine-produced numbers.
Line 4o: Total (Sum of Lines 4a through 4n)
$25
For our EPD example, the only positive income item is $25 of tax-exempt income. All other lines are $0 because Box 1 was negative (loss). This is typical for midstream MLPs — the heavy depreciation on infrastructure creates losses that outweigh operating income.
Line 5: Gain from Contribution of Property (IRC §737)
$0
Gain recognized when the partnership distributes property to you (rare for MLP investors). This is almost always $0 for publicly traded partnerships.
Line 6: Excess Depletion Over Property Basis
$0
Applies to partnerships with oil/gas wells or mineral interests. $0 for pure pipeline/midstream MLPs. May be non-zero for upstream MLPs or partnerships with producing properties.
Line 7: Subtotal (Lines 1 + 2 + 3e + 4o + 5 + 6)
$12,355
EPD example: $11,980 + $0 + $350 + $25 + $0 + $0 = $12,355. This is your basis before distributions and liability decreases. Think of it as your "high water mark" for the year.
Note on Line 3: The IRS form breaks Line 3 into subparts 3a–3e for the liability-share computation. Only the net result on Line 3e feeds into the Line 7 sum. If you are filling the actual IRS worksheet, look for 3a, 3b, 3c, 3d, 3e — Line 3e is the subline that flows here.
This is where basis erosion happens. Lines 8-10 subtract distributions and liability decreases from your subtotal.
Line 8a: Cash Distributions — K-1 Box 19A
$1,025
Source: K-1 Box 19A. Your total cash distributions for the year. For EPD at ~$2.05/unit/year: 500 × $2.05 = $1,025. This is the primary driver of basis erosion for every midstream MLP.
Line 8b: Property Distributions — K-1 Box 19B
$0
Non-cash distributions of property. Almost always $0 for publicly traded MLPs. You'll see this in mergers or restructurings where units are exchanged for property interests.
Line 8c: Total Distributions (Line 8a + 8b)
$1,025
Line 9: Decreased Share of Liabilities (IRC §752(b))
$0
Source: K-1 Item K — if ending liabilities < beginning liabilities, the decrease goes here. For our EPD example, liabilities increased (Line 3 = $350), so Line 9 = $0. A liability decrease is treated as a deemed cash distribution — it reduces your basis just like a cash distribution on Line 8.
Line 10: Total Decreases (Line 8c + Line 9)
$1,025
EPD example: $1,025 + $0 = $1,025. Line 10 sums all Section B decreases: total distributions (8c) and the net liability-share decrease (9c). This is the gross amount that will reduce the Line 7 subtotal in the next step.
What if Line 7 − Line 10 would go negative? Excess distributions trigger taxable gain under §731(a)(1) on Line 11b — see Section 6 below. The §731 mechanics live on Line 11b, not Line 10. See also when distributions exceed basis.
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Open K-1 Basis TrackerPart I of the worksheet ends here. Line 11 has two sublines: 11a (basis after Part I, when positive) and 11b (§731(a) gain on excess distributions, when Line 7 minus Line 10 would go negative).
Line 11a: Basis After Part I (Line 7 − Line 10, if positive)
$11,330
EPD example: $12,355 − $1,025 = $11,330. The Line 7 subtotal minus Line 10 total decreases. This is the basis going into Part II of the worksheet (nondeductible expenses, depletion, and loss class allocation across columns A–E).
Line 11b: §731(a) Gain on Excess Distributions (if Line 7 − Line 10 is negative)
$0 (no excess this year)
If Line 7 minus Line 10 would be negative, the negative amount is recognized as taxable gain under §731(a)(1) and reported on Line 11b. Line 11a is then set to zero. This is where the "distributions exceed basis" mechanics live on the worksheet — before any loss-class allocation in Part II.
EPD example: $12,355 − $1,025 = $11,330 positive, so Line 11b = $0. No excess distributions this year.
Part II of the worksheet processes loss-class allocations across columns A through E (one column per loss class). Lines 12 and 13 reduce basis for nondeductible items. These are not loss-limitation lines — they are basis reductions that come before the loss-class allocation in Lines 15a–15t.
Line 12: Nondeductible Expenses (Box 18C)
$0
Source: K-1 Box 18 Code C — nondeductible expenses that still reduce basis (penalties, fines, certain meal/entertainment items). Most retail MLPs report $0 here in a typical year.
Line 13: Depletion (Oil and Gas)
$0
Depletion deduction allowed for partners owning interests in oil and gas properties. $0 for pure pipeline/midstream MLPs. May be non-zero for upstream MLPs or royalty partnerships (e.g., NRP, BSM).
Line 14: Basis After Nondeductible Expenses and Depletion (Line 11a − Lines 12 − 13)
$11,330
EPD example: $11,330 − $0 − $0 = $11,330. Most retail midstream MLPs see no change between Line 11a and Line 14 because Lines 12 and 13 are typically zero. Line 14 is the basis available to absorb losses in the next step (Lines 15a–15t).
Lines 15a–15t allocate available basis (Line 14) among loss classes when current-year losses exceed available basis. This is NOT the §465 at-risk computation — that lives on Form 6198, separately from this worksheet. Lines 15a–15t process across columns A through E, with each loss class getting its share of basis under the IRS allocation rules.
Lines 15a–15t: Loss Class Allocation
Each line is a distinct loss class. Key entries for MLP investors:
15a: Ordinary business loss (negative Box 1, excluding the BIE component — the worksheet carves BIE out into its own class)
15e / 15f / 15g: Net short-term capital loss / net long-term capital loss / net §1231 loss
15i: §179 deduction (Box 12)
15j: Charitable contributions
15n: EBIE — excess business interest expense (Box 13 Code K)
15q: BIE (Box 20 Code N)
15s: Subtotal of the loss classes (15a–15r)
Three distinct mechanics in the BIE class (per the TY2025 Partner's Instructions and Reg §1.163(j)-6(h)):
- BIE is its own loss class — lines 15n and 15q together — whether or not you are personally subject to the §163(j) limitation. Basis allocated to the class absorbs Line 15q (current-year deductible BIE, Box 20N) first; only after 15q is fully absorbed does remaining class basis absorb the EBIE on Line 15n.
- EBIE (Box 13 Code K) reduces basis in the year it is allocated, even if you get no deduction that year — the deduction itself is a separate Form 8990 question, released in a later year by Box 20AE (excess taxable income) or 20AF (excess business interest income). The basis reduction does not wait for the release.
- Unused EBIE comes back at disposition. If you sell the interest before the allocated EBIE was ever deducted, basis increases immediately before the sale by the undeducted amount (worksheet Line 17; Reg §1.163(j)-6(h)(3)).
EPD example: Box 1 ordinary loss of $480 → Line 15a = $480. Available basis at Line 14 is $11,330, well above the $480 loss. The full ordinary loss is absorbed with no suspension.
Lines 16–17: Column Allocations
Lines 16 and 17 are the column-allocated subtotals from the loss-class processing. For most MLP investors with adequate basis, these flow through cleanly to Line 18.
Line 18: Ending Adjusted Basis
$10,850
This is the number that matters. Your ending adjusted basis for the year. This becomes next year's Line 1. This is the number the IRS expects you to use when you sell — not your broker's number.
EPD example summary: Started at $11,980 (Line 1). +$350 liability increase (Line 3e) + $25 tax-exempt income (Line 4m) = $12,355 subtotal (Line 7). −$1,025 cash distributions (Line 8a) = $11,330 basis after Part I (Line 11a). −$480 ordinary loss absorbed via Line 15a class allocation = $10,850 ending basis (Line 18). Decline of $1,130 (~9%) in one year. Your broker still shows $13,000.
Note on §465 at-risk
For most retail MLP investors holding publicly traded units, the at-risk amount equals the tax basis and no separate at-risk limitation applies. The §465 at-risk computation, when relevant, is performed on Form 6198 — separately from this basis worksheet. Do not conflate the two frameworks.
The most common point of confusion on the basis worksheet: Line 4n adds BIE back to gross income, and Line 15q deducts BIE as a loss class. Outside a §704(d) basis-limited year they cancel — Box 20N on its own does not move basis, because per the IRS it "was already included as a deduction on another line of your Schedule K-1."
Per IRS Partner's Instructions for Schedule K-1 (Form 1065), TY2025, Line 4n: "Enter the business interest expense (BIE) reported in box 20, code N, of Schedule K-1, or the amount by which BIE reduced positive ordinary income amounts in box 1, 2, or 3 of Schedule K-1, if less." That "if less" clause is the cap. On the decrease side the IRS worksheet enters the full Box 20N on Line 15q — but simultaneously carves BIE out of the loss lines: Line 15a's instruction reads "Exclude BIE that was included in reporting losses in box 1, 2, or 3," and lines 15b/15c say "excluding BIE" on the worksheet face. Add it up and BIE washes: Code N's own definition says the amount "is reported here for information only and was already included as a deduction on another line of your Schedule K-1." This tool computes the identical net with one simplification — Line 15q carries the same capped amount as Line 4n instead of splitting BIE out of each loss line (the split requires the Code N statement detail, which isn't on the K-1 face). Ending basis is the same either way. Basis is reduced by undeducted business interest only when the partnership allocates it as excess business interest expense (Box 13 code K).
Scenario A — Cap does NOT bind (Box 20N ≤ positive Box 1+2+3)
Setup
Box 1 = +$500. Box 20N (BIE) = $300. Beginning basis = $1,000. No other items.
Engine output
- Line 4a (Box 1 positive): $500
- Line 4n (BIE addback, capped at min($300, $500)): $300 — cap does not bind
- Line 4o (total increases): $800
- Line 7 (basis before decreases): $1,800
- Line 15q (current-year BIE deduction): $300
- Allowable losses under §704(d): $300
- Line 18 (ending adjusted basis): $1,500
Net basis change: +$500. Line 4n addback ($300) and Line 15q deduction ($300) exactly cancel. The basis change equals positive Box 1 income alone — economically, this is what you'd expect when the partnership had $500 of positive ordinary income and $300 of BIE that reduced it to $200 net taxable but reported the gross $500 with separate BIE disclosure.
Scenario B — Cap BINDS (Box 20N > positive Box 1+2+3)
Setup
Box 1 = +$200. Box 20N (BIE) = $300. Beginning basis = $1,000. No other items.
Engine output
- Line 4a (Box 1 positive): $200
- Line 4n (BIE addback, capped at min($300, $200)): $200 — cap binds; Line 4n is $100 less than Box 20N
- Line 4o (total increases): $400
- Line 7 (basis before decreases): $1,400
- Line 15q (current-year BIE deduction, same cap as 4n): $200
- Allowable losses under §704(d): $200
- Line 18 (ending adjusted basis): $1,200
Net basis change: +$200 — still equal to positive Box 1 income. The cap binds both lines identically: Line 4n adds back $200 and Line 15q deducts $200. The $100 of BIE beyond the cap never reduced the positive income reported to this partner, so it neither enters nor leaves the worksheet — it is §163(j) information for Form 8990, and it reduces basis only if the partnership allocates it as excess business interest expense (Box 13 code K) in a later year.
The pattern: Box 20N on its own never moves ending basis — whether or not the cap binds. The IRS worksheet reaches that wash by pairing a full Line 15q with the "excluding BIE" carve-out on lines 15a-15c; this tool reaches the same ending basis by carrying the Line 4n capped amount on both lines. The one exception is a §704(d) basis-limited year: BIE competes with the year's other losses for the remaining basis, so part of it can be suspended while the 4n addback landed in full — a timing difference that reverses when the suspended amount releases.
The numbers above are produced by running the K-1 Basis Tracker engine on the documented inputs (no hand-computation). A build-time check verifies that this article and the engine agree on every value — see scripts/check-worked-examples.ts.
The K-1 Basis Tracker engine currently lumps all Box 13 sub-codes into a single basis-reducing "Other deductions" field. For most retail midstream MLP K-1s, where Box 13 is either zero or contains only operating deductions, this produces correct basis output. For broker-dealer and financial-services LPs — partnerships whose K-1s populate Box 13 sub-codes that aren't partnership operating deductions — the engine currently over-reduces basis.
Affected Box 13 sub-codes
- 13A / 13B — Cash charitable contributions. Reportable on Schedule A (itemized), not partnership-level operating deductions. Basis reduction depends on property type; cash contributions do reduce basis but not as §704(d) suspended losses.
- 13H — Investment interest expense. Routes to Form 4952, not partnership-level operating. Should NOT reduce basis at the partnership level.
- 13AC — Interest allocated to debt-financed distributions. Character determined by partner's use of debt (§1.163-8T tracing); not a partnership operating deduction.
- 13AE — Deductions related to portfolio income. §67(g) suspends the deduction at the partner level (TCJA, through 2025); basis treatment is contested.
Concrete example. An AllianceBernstein Holding LP K-1 from TY2025 with Box 1 = +$772, Box 13 sub-codes 13A ($10) + 13H ($8) + 13AC ($2) + 13AE ($12), Box 20N = $16, and the other standard fields:
IRS-correct ending basis: $9,750 (only 13A and 13AE reduce basis; 13H and 13AC are not partnership-level operating deductions).
Engine output: $9,740 — the engine reduces basis by all of Box 13 lumped ($32) instead of the IRS-correct $22, so it over-reduces by $10.
When this matters. For a 100-unit AllianceBernstein position over five years, the residual compounds to roughly $50 — material to nobody. For 5,000-unit positions or longer holds, the residual can become noticeable. For pure midstream MLPs (EPD, MPLX, ET, etc.) with no Box 13 sub-codes populated, the residual is zero.
This is tracked as Defect-004 in our audit ledger, scheduled for PR-3. The fix requires splitting K1Data.box13OtherDeductions into per-code fields with proper per-code routing. Until then, partners with broker-dealer LP K-1s should treat the tool's basis output as conservative — i.e., the engine's number understates basis by no more than (13H + 13B-G + 13AC + similar non-operating sub-codes). The exact understatement equals the sum of those Box 13 sub-codes.
Here's the full worksheet for our 500-unit EPD example, all in one place:
| Line | Description | K-1 Source | Amount |
|---|---|---|---|
| 1 | Beginning basis | Prior year Line 18 | $11,980 |
| 2 | Contributions | — | $0 |
| 3e | Liability increase (net) | Item K | +$350 |
| 4n | BIE addback | Box 20 Code N | $0 |
| 4o | Total income items | Box 18A + 4a–4n | +$25 |
| 5 | §737 gain | — | $0 |
| 6 | Excess depletion | — | $0 |
| 7 | Subtotal (1+2+3e+4o+5+6) | $12,355 | |
| 8a | Cash distributions | Box 19A | $1,025 |
| 9 | Liability decrease | Item K | $0 |
| 10 | Total decreases (8c+9) | — | −$1,025 |
| 11a | Basis after Part I (7−10, if positive) | $11,330 | |
| 11b | §731(a) gain (if 7−10 negative) | — | $0 |
| 12 | Nondeductible expenses | Box 18C | $0 |
| 13 | Depletion (oil & gas) | — | $0 |
| 14 | Basis after nondeductible/depletion | $11,330 | |
| 15a | Ordinary loss absorbed (loss class) | Box 1 (loss) | −$480 |
| 18 | Ending adjusted basis | $10,850 |
The broker shows $13,000. The IRS expects $10,850. After just two years, the gap is already $2,150 — 17% of the purchase price. And it grows every year.
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The K-1 Basis Tracker calculates every line automatically from your K-1 data. Multi-year tracking, lot-level allocation, and PDF export included.
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Open K-1 Basis TrackerPutting negative Box 1 on Line 4a instead of Line 15a
This is the #1 error. If Box 1 is negative (which it usually is for MLPs), Line 4a = $0 and the absolute value enters the loss-class allocation on Line 15a (Part II, ordinary loss class). Putting a negative on Line 4a double-counts the loss against income.
Skipping Item K liability changes
Item K is at the bottom of K-1 page 1 — easy to miss. Liability changes can shift your basis $0.50-$2.00/unit per year. Over 5+ years, this compounds into hundreds or thousands of dollars.
Forgetting to carry forward suspended losses
When losses exceed available basis (Line 14), the unabsorbed portion of each loss class on Lines 15a–15t becomes suspended and carries forward. Suspended EBIE on Line 15n carries forward under Reg §1.163(j)-6(h)(1). If you lose track of suspended amounts, you forfeit deductions you're entitled to. The K-1 Basis Tracker tracks these automatically.
Confusing §704(d) basis limitation with §469(k) passive limitation
§704(d) limits losses to your basis (this worksheet). §469(k) limits PTP passive losses to PTP passive income. Both apply sequentially. A loss can be allowed by §704(d) but still suspended by §469(k).
Not completing the worksheet for years with no distributions
Even if distributions are $0 (rare), your K-1 still has income allocations, liability changes, and deductions that affect basis. Every year requires a worksheet — no exceptions.
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Frequently Asked Questions
The worksheet is in the IRS Partner's Instructions for Schedule K-1 (Form 1065), page 2. It's not a separate form you file — it's a calculation worksheet you complete to determine your adjusted basis. The K-1 Basis Tracker implements this worksheet automatically.
Yes. Your ending basis each year (Line 18) becomes next year's beginning basis (Line 1). If you skip a year, every subsequent year's basis is wrong. This is why MLP basis tracking requires every K-1 from purchase to sale.
If Line 7 (subtotal of basis after Part I increases) minus Line 10 (total decreases from distributions and liability share decreases) would be negative, the negative amount is recognized as taxable gain on Line 11b under §731(a)(1). Line 11a is set to zero. The §731(a) excess-distribution rule mechanically applies on the worksheet at Line 11b, before any loss-class allocation.
Negative Box 1 amounts (ordinary business loss) go to Line 15a (the ordinary loss class in Part II), NOT Line 4a. Line 4a only takes positive income. The loss class allocation in Part II then determines how much of the loss is allowed against available basis and how much is suspended.
Increases in your share of partnership liabilities (Item K ending > beginning) go to Line 3 as a basis increase. Decreases go to Line 9 as a basis reduction. Liability changes are often the most misunderstood item on the worksheet.
Line 14 is basis after nondeductible expenses and depletion (Line 11a reduced by Lines 12 and 13). Line 18 is the ending adjusted basis after the §704(d) loss class allocation in Lines 15a–15t. Line 18 becomes next year's Line 1. The §465 at-risk computation, when relevant, lives on Form 6198 — separately from this worksheet.
Yes. The K-1 Basis Tracker implements the complete 18-line IRS worksheet automatically. Enter your K-1 data and it calculates every line, handles loss suspension, tracks multi-year basis, and shows your ending adjusted basis.
Disclaimer: This content is for educational and informational purposes only. It does not constitute tax, legal, or financial advice. MLP taxation involves complex rules including basis tracking, §751 recapture, passive activity limitations, and multi-state filing. Consult a qualified tax professional before making tax or investment decisions.
Lucas Andersen is not a CPA, Enrolled Agent, or tax attorney. Information reflects rules as of the date published and may change. Always verify with current IRS guidance.