Discussion:Sec 754 AGAIN. Write down?

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Discussion Forum Index --> Advanced Tax Questions --> Sec 754 AGAIN. Write down?

Discussion Forum Index --> Tax Questions --> Sec 754 AGAIN. Write down?

Yt1300inHtown (talk|edits) said:

25 February 2009
Howdy all.

Circumstances: Partner sells interest in LLP for 85K. Partner's capital capital balance is 495K.

My only (limited) experience with this section is when the sales price is higher and the assets are booked up. But in my scenario, am I understanding correctly that there will be a write DOWN? How else do I account for the 410K difference? (no liabilities BTW)

I have looked at eamples but none that fit my situation. Perhaps its not 754 I need.

Smart guys, your thoughts?


Futenma (talk|edits) said:

25 February 2009
If the partnership has a substantial built in loss at the time of transfer (adjusted basis of partnership property exceeds FMV of property by $250,000) then partnership is required to adjust its basis. If there isn't a substantial built in loss, then partnership doesn't have to adjust basis unless there is a 754 election already in effect.

Yt1300inHtown (talk|edits) said:

25 February 2009
Thanks for the reply.

I don't see we have a built in loss issue. That's a good point though.

So do I just leave the partner's capital account as is? Do I track the capital account and what the new partner paid for it seperately?

Riley2 (talk|edits) said:

25 February 2009
Also, if the partnership made a 754 election in a prior year, then the step-down is mandatory.

Futenma (talk|edits) said:

26 February 2009
I think you leave the capital account as is.

Yt1300inHtown (talk|edits) said:

26 February 2009
Thanks Riley. They DID make the election on their 2004 return and stepped UP.

BerkshireCPA (talk|edits) said:

30 May 2014
I also am trying to work through the mechanics of a 754 write down. Because of the large discounts taken on the 706 (and a generous appraisal) I find myself having to write down the assets. There is a building on the books for $4.5 million with $4.4 million of accumulated depreciation, for a net book value of $100k. There is also land on the books at $200k. There are prior 754 elections in place that resulted in step ups.

The deceased partner owned 30%. So the partner in question has a $30k interest in the building and $60k in land. The problem is the value going on the 706 is going to be less than the partner's share of cash in the partnership. With $1 million in the checking that means his share would be $300k of cash plus the building and land.

But the 706 is going to show $275k. I was going to value his cash at $300k, bring the land and buildings down to zero (on my tax tracking schedules) and then put some type of deferred income account in the tax tracking that should be recognized down the road (or immediateley?). I was also going to calculate depreciation on the remaining assets but was going to have some type of 754 Ordinary Income adjustment on the new K-1 to reflect an offset to the depreciation taken on his 30% share since his basis was now zero.

Anybody familiar with the mechanics? Am I on the right track ?

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