Here is a brief synopsis:
- In 2014, my spouse inherited 1/8 share of a 27 year old rental real estate business.
- Prior to 2014, the LLC had used ~$1M of depreciation.
- LLC's accountant did not file a 754 election to step-up the basis for the heirs.
- In 2021, the LLC paid a licensed commercial real estate appraiser to estimate the FMV at the time of inheritance.
- Valuation was $1.5M, using sales comparison and income capitalization approaches.
- The appraisal has verbiage to justify a step-up in basis to the IRS.
- The business and all property was sold in 2022, proceeds distributed, and the LLC was dissolved.
- All proceeds appear on the K-1, there is no other document from the accountant.
- Partner's basis can be stepped up by subtracting 1/8 share of the appraiser's FMV from the Section 1231 gain.
- What's odd to me is that Box 9c on my spouse's final K-1 shows unrecaptured Section 1250 gains = 1/8 of ALL depreciation that was ever taken by the LLC, going back to 1987.
- 90% of the LLC's historical depreciation was taken prior to inheritance.
My question is: are heirs responsible for ALL unrecaptured section 1250 gains over the life of a partnership?
- In my mind, the heir should only be responsible for their share of the LLC's depreciation taken AFTER the inheritance.
- And if I am correct, how to show this adjustment in TT?
Thanks in advance for your advice!
