Entering Section 754 Basis Adjustment

[sd2786]

I was a member of a partnership that bought out one of our members.  Subsequently, this produced a 754 adjustment for the remaining partners whereby the transferred capital was treated as a distribution to the remaining partners and should produce an offsetting step-up in (outside) basis upon a sale.  This was a real estate partnership and due to depreciation/distributions the transferred capital was negative, i.e., the exiting partner had a negative capital account.  I understand that I need to increase my basis by the amount of the 754 adjustment so as not recognize additional gain.  What I don't know is where or how I enter this amount into Turbo Tax when the property sells and gain is recognized.  Any help would be appreciated.

[RichardG · Accepted solution]

The Section 754 election must be made in a statement that is filed with the partnership's timely filed return (including any extension) for the tax year during which the distribution or transfer occurs. The statement must include:

• the name and address of the partnership;
• a declaration that the partnership elects under section 754 to apply the provisions of section 734(b) and section 743(b), and;
• the signature of a partner authorized to sign the partnership return

Report the adjustments on an attached statement to Schedule K-1.

Otherwise, these basis adjustments are not recorded in TurboTax, but on the partnership books.  When the property is later sold, you'll adjust the basis at that time for tax reporting.

[sd2786]

Thank you for your response.  I have the K-1 and entered the information described above under Box 20 code Z.  My question is where or how I adjust the basis in Turbo Tax when the property is sold.

[RichardG]

When the property is sold, you should have the option to make basis adjustments as part of the interview for the sale.  If not, you can always make adjustments in forms mode.

[Kelly4]

Where do you make adjustment for basis in forms mode for sale of rental

[Nrouhani1]

DOES IT GO WITH NEGATIVE OR POSITIVE SIGN ON TUBO TAX LINE 13A-E-9?

[Mike9241]

because line 13 is for deduction and the section 754 adjustment is also a deduction, enter as a positive number.