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:
- Go to Interview Form DP-1.
- In Box 31 - Description, input a unique description for the asset.
- In Box 32 - Date in Service, input a valid date.
- In Box 33 - Method, select a Lookup Value (F4) and a valid code from the list.
- In Box 34 - Life-Rate, input a number of years or months depending on the method selected in step 4 (above).
- In Box 35 - Cost / Other Basis, input the value of the 754 step up.
- In Box 180 - Ratio ID for special allocation or 754, input a unique numeric ratio ID.
- Go to Interview 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.
- Calculate the return.
Method 2 - Total override:
- Go to Interview Form A-3 - Deductions.
- In Box 145 - Depreciation - Section 754 - override, input total amount for the selected activity.
- Calculate the return.
And/Or
- Go to Interview Form E-1 - Rent and Royalty Income and Expenses.
- In Box 143 - Depreciation - Section 754 - override, input total amount for the selected activity.
- Calculate the return.
Method 3 - Deduction from K-1 1065 received:
- Go to Interview Form IRS K1P
- Scroll to page 4 - Schedule K-1 Other Info, Additional K-1 Info, Other Income and Deductions.
- In Box 364 - Section 754 basis reduction, input applicable amount.
- 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:
- 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.
- 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 can be used if desiring to attach a statement regarding 754 information.
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