i may have misled you on your situation by assuming that the 1.5 million was the valuation of the decedent's interest rather than the value of the real property (ie it does not include the value of other assets like cash net of liabilities such as a mortgage). if it was the decedent's interest than what I provided was correct as to outside basis but if it was the value of just the property then the starting amount is the decedent's capital account on the date of death plus the difference between the decedent's share of the appraised value of the property and the tax basis of the decedent's interest in the property IE what would have been the IRC sec 754 step-up.
example:
decedent's share of appraised value of property $1,500.
tax basis of the decedent's share of property $300
difference $1200 (this would have been the 754 step-up had the election been made)
capital account on date of death (this would reflect any income for the part of the year before death) say $16 consisting of property of $300 less mortgage of $284
thus, in this example, the starting outside basis because 754 was not elected would be $1216.
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if 754 had been elected and the building had been immediately sold for $1500 the k-1 would reflect no gain or any amount on line 10 or 9c after paying of the mortgage of $284 there would be $1216 left to distribute which equals the capital account
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now say the property was sold at year end for the $1500. depreciation taken post death and the loss for the remainder of the year was $20 (including the depreciation). line 2 would reflect a loss of $20 (depreciation) while line 9c and 10 would reflect a profit of $20 (selling price of $1500 less tax basis of $1480). mortgage payoff as above.
tax basis to start $1216 less line 2 loss of $20 plus line 10 income of $20 (line 9c is included in line 10) = $1216. notice that the pre death depreciation is gone. I cannot tell you why the election was not made.
then line
this thread may help clarify what the election would have done
https://www.bbdcpa.com/investment-company-notebook/section-754-election
the difference is that with depreciable property prior depreciation would be eliminated but the post death depreciation would be higher and the net income because of the higher depreciation would be lower.
what i gave was an example. you results differ but the 190 loss is mathematically correct. you report the numbers on the k-1 for tax purposes. the 190 loss offsets the 1250 gain on 9c of 115
and did part II schedule L of the k-1 show zero as ending capital?
it would seem that the difference between the FMV and tax basis on date of death was $190
that's because if you start with a $5 capital a/c on date of death
add the $535 income post date of death the total is $540
distributions post date of death of $130 excluding 2022 reduces basis to $410
which equals the final distribution of $410
which zero's out capital account which is what's supposed to happen.
this assumes the descendant was a partner/member from day 1 of the entity.
if the $190 is far off you may need a tax pro to review the k-1's starting with the year of death.
the 1231 gain reported on line 10 includes the 1250 recapture reported on line 9c
put another way line 10 on the k-1 shows up on line 11 of schedule D while 9c on the k-1 shows up on line 19 of schedule D.
