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To make a Section 754 election, the partnership must attach a statement to its timely filed tax return, including extensions, for the year of the triggering event. This statement must clearly declare the election under Section 754 and be signed by an authorized partner. The IRS does not provide a specific form for this election, so the ...

Section 754 of the tax code allows partnerships to adjust their tax basis to prevent new partners from paying taxes on gains and losses they didn’t benefit from. Understanding partnership taxation, inside basis, outside basis, step-ups, and step-downs is a great place to start.

The death of a partner often results in a step-up or step-down of the deceased partner’s interest to fair market value, as required by IRC Section 1014. Without a 754 election, the partnership’s inside basis remains unchanged, causing potential inequities for the remaining partners.

A Section 754 election is difficult to revoke, tends to increase the partnership’s administrative burdens, and applies on a mandatory basis to both distributions of partnership assets and transfers of partnership interests, the partnership (and partners) should thoroughly analyze the situation before making the election.

With a Section 754 Election. When Partner C passes away: The partnership makes a section 754 election to adjust the basis of the partnership’s property. Basis adjustment is the difference between Partner D’s inherited value ($500,000) and Partner C’s share of the inside basis ($300,000), which is $200,000.

To make a Section 754 election, a partnership must notify the IRS by attaching a written statement to its timely filed tax return for the year in which the election is to take effect. This statement must indicate that the partnership is electing under Section 754 to adjust the basis of its property under Sections 734(b) and 743(b). It should ...

With a Section 754 election, Partner B can step up the basis to $500,000. - Example 2: Partner C passes away, and their heir inherits the partnership interest, which has received a step-up in basis due to the fair market value at the time of death. Without a Section 754 election, the heir would not benefit from the step-up for partnership assets.

If the partnership fails to make the election, it can file for late relief under Treasury Regulation Section 301.9100-2, which is an automatic 12-month extension for IRC Sec. 754 elections. If more than 12 months have passed, late relief can still be requested but must be approved by the commissioner.

The basis of partnership property shall not be adjusted as the result of a transfer of an interest in a partnership by sale or exchange or on the death of a partner unless the election provided by section 754 (relating to optional adjustment to basis of partnership property) is in effect with respect to such partnership or unless the partnership has a substantial built-in loss immediately ...

The Statement of Election: The partnership must attach a statement to its tax return specifically stating that it is electing under IRC Section 754. Details of the Transaction: A description of the transaction leading to the election, such as the sale of an interest or a distribution of property, should be included.

A partnership may elect to adjust its inside basis under Sections 734(b) and 743(b) by making a Section 754 election with the partnership’s annual tax return. The basis adjustment occurs, however, only when there is (1) a distribution of partnership property or (2) a transfer of partnership interest. 754 elections can be extremely valuable ...

By making informed decisions and leveraging the flexibility provided by Section 754, partnerships can enhance tax planning strategies and support long-term financial goals. For expert assistance in navigating Section 754 elections and optimizing partnership tax planning, consider partnering with AJB & Associates CPAs.

Without a Section 754 election, the heirs would inherit A’s partnership interest with a step-up in outside basis to $500,000, but the inside basis of the assets would remain at zero. This discrepancy could lead to higher taxes for the heirs. By making a Section 754 election, the partnership adjusts the inside basis of its assets to $500,000.

A valid IRC §754 election is made by filing a written statement with a timely filed partnership tax return. Under prior law, the rules required that the statement provide the name and address of the partnership making the election, be signed by any one of the partners, and declare that the partnership is electing under IRC §754 to apply the ...

This disparity can deprive the new partner of depreciation deductions and inflate his or her share of the gain from subsequent property dispositions unless a Section 754 election is in effect. The Section 754 election can also apply when a partnership makes a distribution of property and the basis of the distributed property to the partnership ...

Partnership tax law is always difficult. However, when certain transactions come up, not knowing how to handle them can be costly to clients and practitioners. In this course, we discuss several of these types of situations. We will explore the tax impacts of a PTE election and how a 754 election affects the inside basis of partnership assets.

Section 754 Election and an (Almost) Reportable Transaction. When a §754 election has been made or is in effect on a transfer of a partnership interest, the “inside” basis of the transferee partner’s proportionate share of the partnership’s assets is adjusted to match the transferee partner’s outside basis in the partnership.

Section 754 of the Internal Revenue Code is a tax provision that allows partnerships to adjust the basis of their partnership property. This election is often considered crucial when there’s a proposed transfer of a partnership interest, or when a partnership intends to distribute property to a partner.

Distinguish the tax consequences of a partnership interest sale and of a partnership asset distribution with and without a §754 election ; Identify circumstances when a §754 election may be beneficial ; Calculate the basis adjustments to individual partnership properties when a §754 election is made; Preparation. None. Notice. Download. Fees ...