Section 754 election

[cadugas]

My Brother and I were in partnership on some rental property.

He passed away on April 8 2020

Our interest was 50/50

I have filed succession with the court. It will take a few more months to complete.

I have agreed to buy out his Aires.

Is it necessary to file a Section 754 election

[M-MTax]

Necessary or recommended? https://www.thetaxadviser.com/issues/2015/aug/accounting-for-death-of-partner.html

[Mike9241]

sorry for your loss

the income of the partnership must be split 50% to you 50% to your brother through the date of his death. the 50% after his death goes to his estate - you have not yet purchased his share.  without the 754 election the estate share would only get depreciation on the partnership's basis in the property.  with it the estate gets depreciation based on 50% of the Fair Market Value of the depreciable property on the date of death.  the difference between the depreciation based on FMV and that based on the partnership's basis is the 754 adjustment for the current year reported on line 13 of k-1. if the property is worth less than the original cost basis of the property then you would not elect 754.  

when you purchase the estate's share the partnership terminates because you can't have a 1 partner partnership.   the final partnership return is due 15 days of the 3rd month after termination. so if you purchase the interest in March 2021 the return is due 6/15/2021 you would use the 2020 forms to file that returns. don't be late becuase there is about a $200/momth/partner penalty for late filing.