I have a Schedule K-1 from an LLC which sold a real estate assest this year. I have an adjusted basis in the real estate since part of my share I inherited from my dad and the partnership took the 754 Election. The adjustment to the basis is reported on Schedule K-1, line 20, code U. On the K-1 in the Form View (TurboTax Premier Desktop), there is an asterisk next to the value for line 20, code U. It states, "* Not provided for in program. Manually enter on appropriate tax form." What form should this information be reported on?
IRS 2023 Partner’s Instructions for Schedule K-1 (Form 1065), page 28 states:
Code U
Section 743(b) basis adjustment. The partnership will provide your section 743(b) adjustment, net of cost recovery, by asset grouping.
Go here for more information.
In the IRS Clarifications for Disregarded Entity Reporting an section 743(b) Reporting, code U is addressed in FAQ 6.
Thanks for those links. They are helpful in understanding what is reported on Line 20, Code U. However, what I have been unable to find is how to report this amount on my individual taxes. On which schedule or form should I be entering the values shown on this line? Thanks!
maybe nowhere. Does your k-1 lines 9a and 9c reflect the 743(b)/754 adjustment? In other words, is line 9a net of the remaining basis (20U) and does 9c include depreciation taken on the 743(b)/754 adjustment
Unfortunately, that's not how TurboTax Business reports it. (I'm working on the taxes on both sides of this - the LLC in TurboTax Business, and my personal taxes in TurboTax Desktop for Windows.)
Line 9c is my share of the total depreciation and line 10 is the net 1231 gain. The line 10 gain uses the original basis before the 754 election and the adjustment to the basis is reported on Line 20 Code U.
Still searching for an answer to this. Here's what I am thinking about doing.
Since there is no information in any of the IRS publications about where to enter the information included as Line 20 Code U, I am proposing doing the following. (Note: Line 20, Code U lowers the capital gain on the sale, because it increases the cost basis.)
In TurboTax Desktop, I propose to enter the capital gain reported on line 10 MINUS the basis adjustment reported on Line 20 Code U as the value for line 10. Using dummy numbers:
Schedule K-1 (from LLC)
Line 10: $100,000
Line 20, Code U: $20,000
Schedule K-1 (entries into TurboTax Desktop)
Line 10: $80,000 (= $100,000 - $20,000)
Follow this entry with a statement attached to the return stating why the values reported on Form 4797 Line 7 do not match the value on the K-1 submitted to the IRS by the LLC.
Does anyone see a fatal flaw in this approach?
Thanks for the input!
There is no fatal flaw to this. You can also enter the adjustment directly into the sale transaction on the form if you are using the desktop version. The end result is the correct amount. Mailing in the return with the explanation is just a good way to avoid dealing with letters from the IRS later.