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754 Depr as an "Other Deduction" on UBI Statement A

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Level 2

ProSeries is capable of properly handling the deduction (for general income tax purposes) of the specially allocated depreciation deduction attributable to partners who have a Section 754 basis step-up.  However, that deduction should also be showing on the Statement A, under "other deductions" for the UBI computations associated with Sec 199A, but the "other deductions" field is blank.  Furthermore, the unadjusted basis should also be accounted for and although it appears to be handled at the bottom of the asset entry worksheet, the basis nevertheless does not transfer into the unadjusted basis calculations.  Is Intuit working on fixing this?  Has anybody developed a reasonable work-around?  Obviously, we could force-fit and override the numbers, but a professional product shouldn't need such an approach.

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Level 2

I have had to override...

I use spreadsheets to make it happen & then force it.  The problem is also enhanced, in the fact that the 199A worksheet does not allow for Special Allocations to the effected Partners to the 754 Deduction. 

I have made a suggestion to Proseries about the lack of Special Allocation feature for the 199A worksheet.  Obviously, this was a problem for 2018 and it was not addressed for 2019. I can only hope it will be fixed next year as the program is probably set in stone for this year.

(Sp Allocation is needed for the 199A even if there is not a 754 issue, as partnership can be complex little buggers).

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Level 2

I agree.  I’m new to the program this year, but looking back at prior years, it seems that Intuit has persistently made the mistake of not allowing the asset entry worksheet for 754 basis step-ups to be linked to a specific partner, thereby requiring a special allocation on the K-1 worksheet instead of automating the process.  If they would add a field to link the asset entry worksheet to the specific partner, it would help them to fix their QBI issues, as well as obviating the need for manual special allocations of 754 depreciation.  Pretty easy fix, if they are open to suggestions.  I spoke to a tech rep about the issue yesterday and the subject matter was way over his comprehension level.

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Level 2

I'm only speaking to the 199A Worksheets not have the capability to reflect a Special Allocation.

On the Asset Entry Worksheet, if the box for 754 is checked "x", then the depreciation associated with that partner's asset step-up flows to Line 13W on Page 4 of the 1065.  Line 13W can/does reflect Special Allocations either by a specific amount or percentage.  These amounts are easily done on the K-1 Worksheets.

Since the 199A numbers do not flow to the page 4 or 5 of the 1065, there is no way to do an Allocation by specific amount or percentage.

Although, it would be great to be able to Specially Allocate individual activities...For Example, when there are multiple Rental Activities that various partners participate differently or when there is a change in ownership and there are Gains/Losses/4797 items that need specific allocations.

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Level 2

I think you've completely missed the point of this discussion.  Special allocations are a fact of life when preparing 1065's, but there is absolutely no reason for the 754 depreciation to be specially allocated through the K-1 worksheet.  Each 754 asset entry worksheet applies to one and only one partner, so it could be linked to that partner and the entire process be automated.  And, yes, of course, checking the Sec 754 box on the asset entry worksheet causes the Sec 754 depreciation to flow to the 1065 which can then be specially allocated among partners through the K-1 worksheet.  That's obvious, but it would not be necessary if they simply link the asset entry worksheet to its respective partner.

Furthermore, that same 754 depreciation, which flows to each individual partner's K-1, needs to also show up on their QBI Statement A on the Other Deductions Line, in order for the taxpayer to properly compute QBI.  And, the unadjusted basis number for each partner on their Statement A needs to be increased by the partner's respective share of the 754 basis.  Neither of these two items is being handled by the program, at all!  The easiest way for the developers to fix this would be to link each 754 asset entry worksheet to its respective partner, which could then do all the calculations for you, namely, allocate 754 depreciation expense automatically rather than manually through the K-1 worksheet PLUS provide correct values on the other deductions and unadjusted basis lines of Statement A. Intuit has simply gotten away for years with making you manually specially allocate 754 depreciation rather than automating the process by linking the asset entry worksheet to its respective partner.  That's silly, and it's gotten even worse now, because of the additional complications associated with the QBI data which needs to properly flow to the K-1 Statement A's.

I haven't looked yet at the 1120S or 1041 programs yet, but I would guess that they may exhibit similar problems with QBI reporting as the 1065 program.  As it is right now, the only way to get a 1065 prepared correctly is to do several separate manual steps.  First, as you have stated, manually use the special allocation feature of the K-1 worksheet to allocate the 754 depreciation.  But additionally, for each applicable K-1, a second step is to manually change the Statement A Other Deductions Line to include each respective partner's 754 depreciation expense, effectively duplicating your effort.  Third, manually change the Statement A UBIA line to include each respective partner's unadjusted basis attributable to their 754 basis step-up.  And fourth, manually update the 199A Statement A Summary to adjust the Other Deduction line and UBIA line at the partnership level for the foregoing aggregate manual adjustments to all individual partner Statement A's.  Fortunately, the program allows you to override these fields, so it can be done, it's just not the way I think that a professional's tax software should work. 

As I said, I'm new to the program this year and I'm not impressed with a situation that requires me to jump through so many hoops to get the return right, simply because the developers haven't done their jobs.  There is no good reason for the 754 asset entry worksheet to have not been linked to the  respective partner many years ago.  The QBI issues simply exacerbate that silly omission, crying for them to finally get it right by identifying on the asset entry worksheet the partner to whom it pertains.  Fixing this should be easy, if only someone at Intuit understands the issue and is inclined to fix it.  But, in light of the fact that the problem has persisted for years and you and I seem to be the only two individuals talking about this issue, it's likely that it will never be fixed.  That's a shame, because I was hoping that this was a higher quality product than what I'm seeing.  I hope that someone at Intuit realizes that their omission years ago, while not a big deal until Sec 199A came along, is now a very big deal and they have hundreds (thousands?) of preparers who are improperly preparing K-1's.  I think the backlash that may result from the enormous calculation errors of the 1040 QBI deductions will likely end up with a lot of finger pointing and attempts to recover damages from any deep pockets identifiable, most notably Intuit and their tax preparation customers.  Let's hope this thing gets fixed quickly, because based on the lack of discussion of the issue in this venue, it seems there are very few Intuit customers who are aware of the product's deficiencies.

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Level 2

 In my last post, I laid out a four step process to get the return to print correctly.  I inadvertently left out the fifth step, which is to complete the Schedule K, Line 20c, Code AH in order to print an explanation of the other deductions line of the Statement A.  But, of course, neither this fifth step nor the other four previously mentioned, would be required if Intuit simply fixed their software.

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