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

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

Method 1 - Asset Detail:

  1. Go to Income/deductions
  2. Business / Rent and Royalty
  3. Depreciation and Amortization.
  4. Detail.
  5. In Line 52 - Ratio ID, input a unique number.
  6. Calculate the return.

Method 2 - Total override:

Business deduction:

  1. Go to Income/deductions > Business worksheet.
  2. Expand Section 7 - Deductions.
  3. In Line 10 - Section 754 - override, input the applicable amount of 754 depreciation.
  4. Calculate the return.

Rental deduction:

  1. Go to Income/ Deductions > Rent and Royalty worksheet.
  2. Expand Section 3 - Deductions.
  3. In Line 14 - Section 754 - Override, input the applicable amount of 754 depreciation.
  4. Calculate the return.

Method 3 - Deduction from K-1 1065 received:

  1. Go to Income Deductions > Partnership Passthrough worksheet.
  2. Expand Section 1 - Partnership Passthrough (IRS K-1 1065)
  3. In Line 137 - Section 754 Basis adjustment, input the applicable amount.
  4. 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 are designed for this purpose.

Schedule M-1 compatible only:

  1. Go to L/M-1/M-2/M-3 > Schedule M-1 worksheet.
  2. Expand Section 13- Schedule M-1 Overrides.
  3. Review Lines 6, 8, 18, and 20 regarding section 754 depreciation and amortization book differences.

Schedule M-3 and M-1 compatible:

  1. Go to L/M-1/M-2/M-3 > Book Amounts (Schedule M-1/M-3)
  2. In Line 2 - Depreciation (7711), input the total of all book depreciation.
  3. Calculate the return.
Or
  1. Go to Income/deductions
  2. Business / Rent and Royalty
  3. Depreciation and Amortization.
  4. Select an applicable 754 asset.
  5. Detail.
  6. Grid 3 - State.
  7. In Row State code / book, select BK - Book.
  8. In Line 9 - Current Depreciation - BK column, input applicable book depreciation.
  9. In Line 16 - Code to Force - BK column, select option 1 - Force accountant state depreciation.
  10. Repeat steps 4 through 9 for applicable 754 assets.
  11. Calculate the return.

Generating the Election statement:

  • Note: The IRS no longer requires a signature with the 754 election. Per: NPRM REG-116256-17
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