Final answer:
K-1's for partnerships, trusts, or S-corporations are reported on Schedule E, specifically on Line 3 - 'Rent and Royalties.'
Step-by-step explanation:
The correct answer is option A) Line 3 - 'Rent and Royalties'. K-1's, which refer to certain income statements for partnerships, trusts, or S-corporations, are reported on Schedule E of the tax return. Line 3 on Schedule E specifically captures 'Rent and Royalties,' which is where K-1's should be reported.
It's important to note that K-1's can also have other income or deductions, depending on the specific circumstances of the taxpayer. However, for the purpose of reporting K-1's on Schedule E, the appropriate line to use is Line 3 - 'Rent and Royalties.'