Form 1065 and Schedule K-1 changes for 2025

• Lines 32b to 32d (new): direct deposit for an overpayment on line 32a. Pay any balance on line 31 electronically.
• Section 174A: domestic research or experimental costs are deductible for tax years beginning after 2024, or can be amortized over at least 60 months; certain small businesses may apply the rules retroactively (Rev. Proc. 2025-28).
• Schedule B, question 19: now also covers payments received that are allocable to foreign partners.

The Partner’s Instructions for Schedule K-1 explain the box 13 code X, box 19 and box 20 code ZZ changes from the partner’s side.

• Line 13, code X: the section 181 deduction now includes qualified sound recording productions that begin in a tax year ending after July 4, 2025 and before 2026.
• Line 19: new distribution codes are active, with lines 19a and 19b explaining where each category goes.
• Line 20, code AR: after 2025 the partnership must get an EIN for IRA partners allocated UBTI.
• Line 20, code AZ (new): reimbursement of preformation expenditures.
• Line 20, code ZZ: section 1062 farmland sales, with the information and covenant partners need for Form 1062.

The IRS has posted a draft 2026 Form 1065 (created June 23, 2026), but it marks nothing as new, and when this page was checked in October 2026 the 2026 instructions had not been posted. We will not guess at 2026 changes before they are.

Distributions by category, preformation reimbursements and research costs all need to be visible in the ledger before you can code them. Tagging them to separate accounts in HelloBooks during the year turns the K-1 coding into a report.