Business & farm

Let's try to make it more clear even though it can be confusing. First, is the election and the stepped up basis for your inherited portion of the building and land.

To make the election, a partnership must attach a statement to the partnership’s timely filed return (including any extensions) for the tax year during which a distribution or transfer occurs.  Statement information:

• The statement must include (1) the name and address of the partnership, and (2) a declaration that the partnership elects under IRC Section 754 to apply the provisions of IRC Sections 734(b) and 743(b). See Final Treasury Regulation 1.754-1(b)(1). 
• The election applies to all distributions and transfers during the tax year with respect to which the election is initially filed, and to all such transactions in any subsequent years. It cannot be revoked without permission from the Commissioner. 

1-Basis Adjustment:

You inherited 13.23% of the multifamily property. Your portion of the basis for both land and buildings will remain the same because you owned it and you still own it. So 86.77% of those costs will remain exactly the same.  You would take your percentage to arrive at your cost basis for your portion (belonging to you) before death/inheritance of the remainder.  

This will be entered as an asset with the original date placed in service and all prior depreciation on this stands as it was.  TurboTax will calculate prior and current depreciation on the building. 

The portion that was your sister's now has a stepped up basis.  To determine that amount you will use the fair market value (FMV) of the land and building on the date of death. Use your sister's percentage of ownership to add the remainder interest you now have in her portion of the property.  Create another asset for building and land for the FMV you calculate.

• FMV x 13.23% = Cost Basis of the second asset.  Depreciation begins on the date of death for this new asset (building and land).

Once these steps are completed, then you should remove the original asset(s).

2-Returns to File: You will file the partnership return as a short year.  You report income and expense up to the date of death without changing the assets. It should be marked as the final return. You do NOT file two partnership returns.  Since the partnership will now be a disregarded entity, you will file your return including all activiity for the remainder of the year (the day after death - December 31st).