U.S. · Tax forms
K-1 (1065) box 18 codes A to C.
Tax-exempt income and nondeductible expenses, and what each does to your basis.
Box 18 has three codes. Code A is tax-exempt interest income: report it as an item of information (individuals on Form 1040 line 2a) and increase your partnership basis. Code B is other tax-exempt income: increase your basis, but do not include it in income. Code C is nondeductible expenses: you cannot deduct them, and you decrease your basis by the amount.
Look up a box 18 code
Result
Box 18 codes (2025 K-1)
| Code | Meaning | Where it goes (per the IRS instructions) |
|---|---|---|
| A | Tax-exempt interest income | Report as an item of information; individual partners include it on Form 1040 or 1040-SR, line 2a. Increase the adjusted basis of your partnership interest by this amount |
| B | Other tax-exempt income | Increase the adjusted basis of your interest by the amount shown, but do not include it in income on your tax return |
| C | Nondeductible expenses | Not deductible on your return. Decrease the adjusted basis of your interest by this amount |
Why basis matters here
None of the three codes changes your taxable income directly, but each changes your adjusted basis in the partnership, and basis caps the losses you can claim and affects gain when you sell or receive distributions. The partner’s instructions include a Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership. Keep your own running basis. The capital account on the K-1 is the partnership’s figure and cannot be used as your basis.
Code B and section 892
For income under code B that is exempt by reason of section 892, the partnership attaches a statement describing the nature of the income.
Worked example
Marcus has $800 in code A, $300 in code B and $200 in code C. He enters $800 on Form 1040 line 2a as tax-exempt interest. His basis goes up by $800 + $300 and down by $200, a net increase of $900 from box 18 before any other basis item such as income, distributions or contributions. The $300 of code B and the $200 of code C do not appear on his Form 1040.
More K-1 (Form 1065) pages
Other pages in this set: K-1 (1065) Box 1, K-1 (1065) Box 17, K-1 (1065) Box 20 Codes A and B, K-1 (1065) Box 20 Code N, K-1 (1065) Box 20 Code V, K-1 (1065) Box 20 Code W, K-1 (1065) Box 20 Code AH, K-1 (1065) Box 20 Code Y, K-1 (1065) Box 20 Code AA, K-1 (1065) Box 20 Code AB. The 1099-R box 7 lookup and W-2 box 12 lookup cover the same kind of question for those forms.
Sources
- Instructions for Schedule K-1 (Form 1065) (2025): Box 18, Tax-Exempt Income and Nondeductible Expenses; Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership. Read November 2, 2026.
IRS page last reviewed April 30, 2026. Tax year 2025 edition. Line numbers are those printed in the 2025 instructions and can change. Names in worked examples are made up.
Frequently asked questions
What is box 18 on a Schedule K-1 (Form 1065)?
Box 18 reports your share of tax-exempt income and nondeductible expenses of the partnership. They matter mainly for tracking your basis.
Where does box 18 code A go?
Individual partners include it on Form 1040 or 1040-SR, line 2a, as an item of information. It is not taxed, and it increases your adjusted basis.
Is box 18 code B income taxable?
No. The instructions say to increase your basis by the amount shown but not to include it in income on your tax return.
What are nondeductible expenses in box 18 code C?
Expenses the partnership paid or incurred that cannot be deducted on your return. They reduce your adjusted basis in the partnership by the amount shown.
Can box 18 reduce my taxes?
Not directly. Box 18 amounts are not deductions or credits. They change your basis, which can limit a loss or change the gain on a sale.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. The payer, a CPA or an enrolled agent can confirm what a box or code means for your return. Everything runs in your browser; nothing you enter is sent anywhere.