Distributions and basis
K-1 box 19: distributions, and the line where basis runs out
A partner who took money out of a partnership did not necessarily earn it. Box 19 is the record of what left, and the only question that matters is whether the partner's basis was large enough to absorb it — which is a computation the K-1 does not perform.
The mistake here is not subtle and it is not rare: the distribution lands on a return as income, the client pays tax on money that was already theirs, and the basis schedule that would have shown the error never gets built. The K-1 gives you the raw material to catch it. It does not catch it for you.
The codes
Six codes, three behaviours
Box 19 for Form 1065 in 2025 uses A through D, F and G, with E reserved. The letters split into money, property and payment for services, and each behaves differently the moment it touches basis.
| Code | What it is | What it does to basis |
|---|---|---|
| A | Cash and marketable securities, other than for services | Reduces outside basis, but not below zero. The part that would push basis negative is taxed as gain from the sale or exchange of the interest. |
| B | Distribution subject to section 737 | Can produce section 737 gain in addition to any section 731 gain. The two are computed separately and both belong on the partner's capital gain forms. |
| C | Other property | Reduces basis by the partner's adjusted basis in the property received, not by its fair market value. Nothing is recorded until the property has been valued and its basis established. |
| D | Deemed distribution from a net decrease in the partner's share of liabilities | No cash moves. It is still a distribution for basis purposes, and leaving it out is how a basis schedule ends the year too high. |
| F | Cash or securities for services | A payment for services is ordinary income to the partner and a deduction to the partnership. It is not a return of capital, and it does not belong next to the A amounts. |
| G | Property for services | Same distinction as F, in property rather than cash. |
Working the box
- 1Sort the rows by whether anything changed hands. Cash, securities, property, a liability shift and a payment for services all sit in one box and behave differently. Sort them first, before any arithmetic.
- 2Total the money codes separately from the property codes. Money distributions are added up directly. Property reduces basis by the partner's basis in what they received, so it cannot be totalled with cash until that basis is known.
- 3Compare the money total with the distribution column of item L. Item L is the capital account analysis on the face of the K-1. Its distribution column and box 19 should describe the same events. When they disagree, one of them is not showing the deemed distribution from D.
- 4Recompute the ending basis before you look at the gain. A gain on a distribution is a consequence of basis, not an independent fact. If the ending basis does not reconcile, the gain figure has no support and should not be entered.
The rollforward that decides whether there is any gain at all
Outside basis is not on the K-1. It is the partner's own running total, and it moves like this:
Beginning outside basis
+ the partner's share of income and gain items
+ contributions made during the year
+ any net increase in the partner's share of liabilities
− the partner's share of losses and deductions
− distributions, including deemed distributions under code D
− any net decrease in the share of liabilities
= Ending outside basis, which cannot fall below zero
The last line is the whole check. If the arithmetic produces a negative ending basis, the partner took out more than they had, and the excess is gain — not a negative number to carry forward. The two entries most often left out are the liability movement and code D, and omitting either one pushes the ending figure up in the direction that hides a taxable gain.
Where the K-1 also prints a capital account analysis in item L, compare the distribution column there with the box 19 total. They describe the same events from two directions. A gap of exactly the code D amount is common and is not an error; a gap of any other size means one of the two records is incomplete.
When the number looks right and the return is still wrong
Three situations produce a box 19 that reconciles cleanly and still gets entered wrongly.
- Property, valued instead of basis-adjusted. Code C reduces basis by the partner's basis in the property received. Someone reading quickly uses the fair market value, and the basis schedule quietly ends the year at the wrong number.
- A distribution booked twice. Cash reported in both A and F because the payment was for services and also looked like a draw. Both letters exist on the K-1 for a reason, and the reason is that the amounts are different things.
- A prior-year figure reused. Box 19 numbers repeat when a partner takes the same draw every quarter. A stale figure looks entirely plausible and reconciles against nothing.
For the capital account side of the same reconciliation, including why the 704(b) column and the tax basis column can differ by design, see the capital account rollforward.
Plain answers
Questions about distributions
Is a distribution from a partnership taxable?
Not by itself. A distribution is a return of the partner's investment to the extent of outside basis, and only the part above basis is taxed, as gain from the sale or exchange of the partnership interest. The K-1 does not compute that for the partner, because it does not know the partner's basis.
What is box 19 code D?
A deemed distribution from a net decrease in the partner's share of partnership liabilities. No money moved, but the partner's basis falls by the same amount it would have if cash had. It is the line most often missing from a hand-built basis schedule.
Why does my K-1 show a box 19 amount and a gain on the same transaction?
Because the distribution exceeded basis, and the excess is treated as consideration from a sale. The distribution and the gain are two views of one event: the amount distributed, and the part of it that basis could not absorb. Read them together, never as two separate transactions.
Does box 19 include guaranteed payments?
No. A guaranteed payment for services is income to the partner, reported in its own place, not a distribution of capital. Codes F and G cover payments in cash or property for services that were structured as distributions, and they still are not capital returns.
Does K1 FastTax compute basis or gain?
No. It carries box 19 across as printed, letter and figure, and notes the page. Basis is untouched. Basis is a partner-level computation that depends on prior years and on the partner's own records, and nothing in this product attempts it.
Read every distribution code as printed
K1 FastTax reads box 19 codes and amounts from a K-1 PDF, keeps the letter with the amount and the page with both, and never nets a distribution against income.