I got 754 Adjustment K-1 Form 1065 for Rental Partnership (death of principal partner). Do I add as new K-1 (add 754 Adjustment to name), enter as Amended K-1 or other?

[Laura4]

How do I handle entering a 754 Adjustment for a Rental Partnership in which my share increased after the death of a principal partner?  The options I can think of are to add it as a new K-1 using the same EIN and adding "754 Adjustment" to the title, which is not actually correct, or entering it as an Amended K-1, which is also not correct, or combining the entries from the two K-1s, which also does not seem right. What is the best way to handle this?  I have TurboTax Home & Business. In addition, if I add both as separate K-1s, how does that affect next year, when I will only get one K-1 for the Rental Partnership?  Thank you.

[Rick19744 · Accepted solution]

You should not have received a separate K-1 just for a Section 754 adjustment.  This is usually reported on the K-1 line 13 and noted as such in the footnotes to the K-1.

Now what may have happened is you received a second K-1 as a result of a technical termination, but it would not have just reported the Section 754 adjustment.

Without knowing exactly what occurred here, difficult to provide real clear guidance.  However, if the EIN is the same (as I would imagine it would be), AND the only thing reported on the second K-1 is the Section 754 adjustment (which should not have happened in the first place), then I would just add this amount to the K-1 input that is already in your system for the original K-1.

You may want to inquire with the LLC as to why you received a separate K-1 just for the Section 754, as unless there was a technical termination, you should only be receiving one K-1.

Technically, the Section 754 is just an election.  The adjustment is either Section 743 or 734, and I would assume it is the later in the case of a death where the LLC redeemed the deceased member.

[Laura4]

Thank you. Yes the LLC did this upon the death of parent who was majority partner, redistributing his portion equally to children. It is the same EIN, and it reports the additional share of capital, income/loss, and distributions after the date of his death.  If I add the two K-1s they total the combined share of ownership of the partnership.  There is no note of a technical termination. I have forwarded the question to the LLC's accountant, and hope they are handling it right, or will correct it.

[Rick19744]

And as a follow-up, you will have an attachment to your 1040 as a result of the step-up (Section 754 election).  You should ask for some assistance for this as well.