Learn about partnership and S corporation income

Income from partnerships and S corporations is treated in a specific way on your Massachusetts personal income tax return.

Partnership income

If you're a partner in a partnership, your distributive share of the partnership's income or losses is taxable. You can also claim your distributive share of certain allowable deductions and credits.

Massachusetts basis starts with federal basis plus or minus certain adjustments.

Flow-through deductions not allowed:

  • Deductions for charitable contributions or other U.S. Schedule A deductions
  • Net operating loss carryforward or carryback
  • Deductions for state, local, or foreign taxes on income and any franchise, excise, or capital stock taxes

For Massachusetts purposes, these items are treated differently:

  • Certain capital gains and losses - The differences are based on the Massachusetts capital gain regulation and U.S. tax law. For example, you could report § 1244 stock losses and depreciation recapture as ordinary income on your U.S. return, but they are classified as capital assets for Massachusetts purposes.
  • Portfolio income - Interest on U.S. debt obligations is not taxable by Massachusetts. Interest from non-Massachusetts state and municipal bonds is taxable by Massachusetts.

S corporation income

If you're a shareholder in an S corporation, your distributive share of the corporation's income or loss is taxable. You can also claim your distributive share of certain allowable deductions and credits.

Massachusetts basis starts with federal basis plus or minus certain adjustments.

Flow-through deductions not allowed:

  • Deductions for charitable contributions or other U.S. Schedule A deductions
  • Net operating loss carryforward or carryback
  • Deductions for state, local, or foreign taxes on income and any franchise, excise, or capital stock taxes

For Massachusetts purposes, these items are treated differently:

  • Certain capital gains and losses - The differences are based on the Massachusetts capital gain regulation and U.S. tax law. For example, you could report § 1244 stock losses and depreciation recapture as ordinary income on your U.S. return, but they are classified as capital assets for Massachusetts purposes.
  • Portfolio income - Interest on U.S. debt obligations is not taxable by Massachusetts. Interest from non-Massachusetts state and municipal bonds is taxable by Massachusetts.

Reporting on original tax return

If you reported income or loss on a Schedule E, you must file your tax returns using computer-generated forms made by third-party software. You should (but are not required to) submit the return electronically.

We also accept paper forms produced by the third-party software, as they will have a 2D bar code.

Documents to submit with abatement/amended tax return

  • A copy of Form 1040X - Amended U.S. Individual Income Tax Return and amended Schedule E
  • Massachusetts Form 1 or 1-NR/PY, amended Schedule E

For S corporations, also attach:

  • A copy of original and amended U.S. Form 1120S, Schedule K-1 - Shareholder's Share of Income, Credits, Deductions, etc.
  • Amended Schedule SK-1 - Shareholder's Massachusetts Information
  • A copy of amended U.S. Form 8582 - Passive Activity Loss Limitations (if applicable)
  • An itemized breakdown of your basis (if you're claiming a loss)

For partnerships, also attach:

  • A copy of original and amended U.S. Form 1065, Schedule K-1 - Partner's Share of Income, Credits, Deductions, etc.
  • Amended Schedule 3K-1 - Partner's Massachusetts Information
  • A copy of amended U.S. Form 8582 - Passive Activity Loss Limitations (if applicable)
  • An itemized breakdown of your basis (if you're claiming a loss)

Additional Resources for Reporting on original tax return

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