Section 754 Depreciation

Section 754 allows a partnership to make an election to step up the basis of the assets within a partnership when one of two events occurs.

Section 754 depreciation. Distribution of partnership property or transfer of an interest by a partner. Every general partner of a partnership should be aware of these rules and their implications. A section 754 election can be a favorable tax efficiency tool that is unique to partnerships as compared to corporations.

After completing the steps for section 754 detailed in either of the articles listed above the deduction will be reported on schedule k 1 as follows. A section 754 election applies to all property distributions and transfers of partnership interests during the partnership tax year for which the election is made plus for all later tax years unless revoked. Once an election is made under section 754 it applies both to all distributions and to all transfers made during the tax year and in all subsequent tax years unless the election is revoked.

Section 754 and 743 b depreciation is usually used to reduce the income reported on the k 1 from the partnership side. Box 13 code w may represent a variety of deductions and the partnership should provide details regarding the reported amounts. For allocating an individual asset to partners section 754 refer to allocating an individual asset to partners section 754.

However the complexity administrative burden and changing economic environment should always be considered carefully. A section 754 depreciation adjustment reported on the supplemental information page of a k 1 does not usually need to be reported anywhere on the individual tax return. In line 4 section 754 depreciation 1065 only enter amount.

The purpose of a section 754 election is to reconcile a new partner s outside and inside basis in the partnership. This election allows the new partner to receive the benefits of depreciation or amortization that he or she may not have received if the election was not made. A taxpayer receives a k 1 from a partnership with an amount on line 13 other deductions identified as a section 754 depreciation or basis adjustment.

Select the section for depreciation and amortization click totals tab located at the top of the section next to the section name.