PKCPAMST
Level 5

This is my reasoning.

When there is a sale or exchange of a partnership interest and the partnership holds property subject to unrecaptured Section 1250 gain, the partnership is required to report to the transferor partner their share of the gain or loss.

Under Reg. Sec. 1.751-1(c)(4)(v), unrecaptured Section 1250 gain assets are Section 751 property. Form 1065 K-1 instructions describe Code AD as “Deemed section 1250 unrecaptured gain.”  To distinguish these “deemed” 1250 gains from “real” garden-variety Sec 1250 gains, the IRS requires the partnership to report "deemed" gains on K-1, line 20 with Code AD.

It would have been nice if Lacerte had provided a line on Screen 20 for Line 20, Code AD. Since they did not, I suggested Line 9c in the first post, because the gain is subject to taxation at the rate for unrecaptured Sec 1250 gain either way.