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Depreciation recapture commercial rental property

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How do you handle depreciation recapture on a sale of commercial property that is held in a partnership in Proseries? Adjust the individual K-1 gain?

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8 Replies 8
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Level 12

The sale is on the Partnership return, and everything should automatically flow to the K-1 without adjustments.

What do you think needs to be adjusted?

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Thanks for your reply.

I will clarify the problem. There are several partners (family of six), upon the death of a partner, the interest is transferred to the descendants. This continues until the last original partner passes.  The partnership has a commercial building (rental) that is sold after the last original partner passes, and the partnership closed.  Therefore we are dealing with step up costs and additional depreciation recapture to report of the descendants (new partners).  Trying to figure an easy way to input these adjustments into Proseries. 

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Level 11
Level 11

What is in the partnership agreement about the death of a partner? if not addressed, I believe the deceased partners share of profits/loss goes to his estate, unless the remaining partners want to buy his share. Don't understand your question about the future sale of the building, as there are no cost until sold. Also your state may have some steps to follow if a partner leaves and or dies.  

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The partnership goes to the descendants of said partner.  At that time the respective descendant received a step up cost.  Note: All partnership activity is allocated to the partners.  The partnership will not be closed until after the sale of the commercial property.  Currently we have kept the step up cost of all respective descendants in a separate depreciation schedule and than add their additional depreciation to their partnership K-1. I believe the only way to deal with this is to enter the information as an adjustment to page 4 of form 1065 Schedule K Partners' Distributive Share Items.

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Level 15

The additional depreciation due to the step up gets passed thru to the relevant partners as a separately stated item on their K-1s. Box 13 Code W. It is not a partnership item. I do not know how to do this in ProSeries.


ex-AllStar
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Level 11

It has been a  long while, and I can look tomorrow, but there used to be a depreciable asset code called 754 election. The partnership has to make the election, and the depreciation must be specially allocated to the appropriate partner.

743 also applies upon death of a partner. Google both codes to find out, but I think PS has automatic election forms.

You would have a separate election for each dead partner.

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Level 11
Level 11

ProSeries Pro has a 754 election, and when you adjust the basis on the asset entry worksheet there is a box to check if IRC section 754 adjustment. I have not done one so I don't know the ins and out.

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Level 11

Check box on depr worksheet for the 754 asset, above this year's depr expense. Then go to the Sch k-1 w/s to specially allocate this amount. It shows on Sch K and K-1 as Other deductions Box 13, code W.

You have to add a footnote or schedule showing your calculation of the step up and which assets it belongs to.

** I'm still a champion... of the world! Even without The Lounge.