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An IRC Section 754 election allows a partnership to adjust the basis of the property within a partnership under IRC Sections 734(b) and 743(b) when one of two triggering events occur: 1) a distribution of partnership property or 2) certain transfers of a partnership interest. These adjustments can only be made if the partnership has made an ...

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. ... a 754 election can help avoid unnecessary taxes on gains or ...

The election adjusts the basis of remaining or distributed assets to reflect the partnership’s economic reality. For example, when a partner receives appreciated property, a 754 adjustment ensures equity among remaining partners by realigning basis values. Key Filing Steps. Making a 754 election requires strict adherence to tax regulations.

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.

When Section 754 Depreciation Applies. Section 754 depreciation becomes relevant when there is a transfer of a partnership interest, whether through sale, inheritance, or a property distribution by the partnership. An election under Section 754 allows the inside basis of partnership assets to align with the outside basis of the partner’s ...

A valid Section 754 election may provide substantial tax benefits to the owners of entities taxed as partnerships because it allows for an adjustment to the partnership’s basis of property Generally, in the case of a basis adjustment of depreciable or amortizable property, depreciation and amortization deductions (with respect to the basis ...

These adjustments can only be made if the partnership has made an election under IRC Section 754. When a Sec. 754 election is made, the partnership steps up the inside cost basis – but only for the new partner. This balances the inside cost basis and outside cost basis and reduces the capital gains tax when a property that has appreciated is ...

The Code Section 754 election is a valuable tool for ensuring tax equity among the partners in a partnership. Its use should be accompanied by careful record keeping at the partner and the partnership level. Dean L. Surkin, JD, LLM, is a tax director at Gettry Marcus CPA, P.C. He is a tax attorney with broad-based experience in tax planning and ...

by the §754 Election Example 1. (i) A is a member of partnership PRS in which the partners have equal interests in capital and profits. The partnership has made an election under §754, relating to the optional adjustment to the basis of partnership property. A sells its interest to T for $22,000. The balance sheet of the

In addition to receiving an allocation of a pro-rata percentage of the depreciation on the existing tax basis of the partnership’s assets, a Section 754 election and corresponding 743(b) basis adjustment would allow Partnership A to take a total of $82 additional depreciation in the first year of the election, comprised of $7 for depreciation relating to the building ($180 over 27.5 years ...

Timing: The Section 754 election must be made by the partnership on its tax return for the year in which the event triggering the basis adjustment occurs. It's crucial to timely elect and properly document the election. Valuation: Accurate valuation of partnership assets is essential to correctly determine the basis adjustments.

Making the 754 Election Making the 754 election will bring the inside and the outside basis into balance, therefore preventing underserved gains when appreciated property is sold. The critical thing to understand about the 754 election is it is a tax concept only. It does not appear on the balance sheet, no money is changing hands.

A Section 754 election refers to a provision under the Internal Revenue Code (IRC) that allows partnerships to adjust the basis of partnership property. This adjustment can help balance the differences between the inside basis (basis of partnership’s assets) and the outside basis (partner’s basis in their partnership interest) upon the sale ...

Section 754 of the Internal Revenue Code (IRC) deals with complex issues that often arise in connection with assets owned by a partnership. Under Section 754, a partnership may adjust the basis of partnership property when the property is distributed or when a partnership interest is transferred. ... By making a 754 election at the time of ...

Section 743 applies when the outside basis of a partnership interest differs from the partner’s share of inside basis, including when there is a sale or exchange of the partnership interest or upon the death of a partner, resulting in a basis adjustment to the partnership interest pursuant to Section 1014(a). To make a 754 election, a ...

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.

A Section 754 election can offer significant tax benefits, particularly in avoiding double taxation and providing additional depreciation deductions. However, it also comes with increased ...

Section 754 Election – An Overview. A good starting point would be to gain an understanding of what a section 754 election is and what it is designed to do. 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 ...

If the partnership has elected § 754 and has not properly revoked that election there is no reason to elect again. (§ 1.754-1.) In order to make a valid election the return must be timely filed. (§ 1.754-1(b).) For partnerships this is on or before the fifteenth day of the fourth month following the close of the partnership's taxable year.