What are the basics of IRC Section 754 in a 1065 return using interview view?

1065, page 4, Schedule K/K-1, line 13D/13W, deduction:

Method 1 - Asset Detail:

  1. Go to form DP-1.
    1. In Box 180 equivalent, input a unique numeric ratio ID.
  2. Go to form K-5.
    • In Box 30 populate with the entry into made to DP-1 box 180, if partner allocation of 754 depreciation is different than prorata.
  3. Calculate the return.

Method 2 - Total override:

  1. A-3 - Deductions.
    • In Box 145 - Depreciation - Section 754 - override, input total amount for the selected activity.
  2. Calculate the return.
And/Or
  1. E-1 - Rent and Royalty Income and Expenses.
    • In Box 143 Depreciation - Section 754 - override, input total amount for the selected activity.
  2. Calculate the return.

Method 3 - Deduction from K-1 1065 received:

  1. Go to IRS K1P.
    • In Box 364 - Section 754 basis reduction, input applicable amount.
  2. Calculate the return.

The Book-to-tax difference:

Preparers often ask why the partner capital accounts are being reduced by the 754 depreciation. This is because our system does not automatically assume it needs to be added back for book income. The following inputs on Interview form L-3 are designed for this purpose to adjust only the M-1 and to flow no where else.
  • L-3 boxes 71 and 73 flow to 1120 Page 5, Schedule M-1, line 7a - Deductions included on Schedule K, lines 1 through 13d, and 16I, not charged against book income this year (itemize), this will increase book income. 
  • L-3 boxes 51 and 54 flow to 1120 Page 5, Schedule M-1 line 4 - Expenses recorded on books this year not included on Schedule K, lines 1 through 13d, and 16I (itemize), this will decrease book income.
If a Federal M-3 is present in the return:
  • In L-3 box 91, input the book amount and the system will calculate the difference for M-3 page 3 line 25, column b.

Generating the Election statement:

  1. Go to Interview form FE-1.
    • In Box 43 - X to adjust basis of partnership property filed pursuant to Regulation Section 301.9100-2 , select the box if applicable.
    • In Box 44 - X to adjust the basis of partnership property under IRC Section 754, select the box if applicable.
  2. Calculate the return.
Note: The IRS no longer requires a signature with the 754 election. Per: NPRM REG-116256-17
OS-3, box 32 which overrides 1065 page 3, line 12a.
EF-PDF-1 attach > use box 150, if desiring to attach a statement regarding 754 information.
 
  Solution Tools
  Attachments
 Solution Id 000059076/000059076
 Direct Link
To provide feedback on this solution, please login.

Your feedback about this article will help us make it better. Thank you!