U.S. · Tax forms
K-1 box 20 code AB.
Ordinary-income gain or loss on selling a partnership interest, and codes AC and AD.
Box 20, code AB reports the partner’s share of gain or loss on the sale of the partnership interest that is taxed at ordinary income rates (the section 751 part). Code AC covers gain taxed at the collectibles rate under section 1(h)(5), and code AD covers gain taxed as unrecaptured section 1250 gain under section 1(h)(6). The same information appears on Part IV of Form 8308, but you report it on your return only once.
Look up a sale-of-interest code
Result
Codes for a sale of a partnership interest
| Code | Meaning | Where it goes (per the IRS instructions) |
|---|---|---|
| AB | Section 751 gain (loss) | Partner’s share of gain or loss on the sale of the partnership interest subject to ordinary income tax rates. For foreign transferors it must also be on Schedule K-3, Part XIII |
| AC | Section 1(h)(5) collectibles gain | Partner’s share of gain on the sale of the interest taxed at the rate for collectible assets |
| AD | Section 1(h)(6) unrecaptured section 1250 gain | Partner’s share of gain on the sale of the interest taxed at the rate for unrecaptured section 1250 gain assets |
Why a sale produces ordinary income
Gain from selling a partnership interest is generally capital, but the instructions explain that if any money or property you receive is attributable to unrealized receivables or inventory items (a section 751(a) exchange), that portion is ordinary income. Code AB reports it so you can report it correctly. Gain or loss from disposing of your interest may also be net investment income subject to the NIIT.
Notice, Form 8308 and boxes 9b and 9c
A partner who sells in a section 751(a) exchange must notify the partnership in writing within 30 days of the exchange or, if earlier, by January 15 of the following year. A penalty applies if the partner fails to notify the partnership, unless reasonable cause is shown. The partnership reports codes AB, AC and AD on Part IV of Form 8308, which it may, but need not, give to transferor and transferee partners. The partnership may also report collectibles (28%) gain in box 9b and unrecaptured section 1250 gain in box 9c, but the sale information must be reported on your return only once.
Worked example
Tara sells her interest for a total gain of $50,000. Her K-1 shows $12,000 in code AB because part of the price is for unrealized receivables. She reports the ordinary-rate part and the capital part as the partnership’s Form 8308 information and the K-1 instructions direct. She gave the partnership written notice of the exchange within 30 days. The example numbers are illustrative; the actual split comes from the partnership’s Form 8308 or K-1.
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 18, 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. 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 20, Other Information, codes AB through AD; Sale or Exchange of Partnership Interest. 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 20 code AB on a Schedule K-1 (Form 1065)?
The partner’s share of gain or loss on the sale of the partnership interest that is subject to taxation at ordinary income tax rates (the section 751 portion).
What are box 20 codes AC and AD?
AC is gain on the sale of the interest taxed at the collectibles rate under section 1(h)(5). AD is gain taxed as unrecaptured section 1250 gain under section 1(h)(6).
Do I have to tell the partnership when I sell?
For a section 751(a) exchange, yes: written notice within 30 days of the exchange, or by January 15 of the next year if that is earlier. A penalty applies unless you show reasonable cause.
What is Form 8308?
The report of a sale or exchange of certain partnership interests. The information in codes AB, AC and AD is also on its Part IV.
Will I report the sale twice?
No. The instructions say that even when the information is reported to you on multiple forms, you report it on your return only once.
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.