Section 754 election

[minli98]

Hi,

It's my first time posting on this board, and I have a question about the 754 election.

We have a partnership with 2 partners. They each sold a small interest to a 3rd partner to join the partnership. Cost basis is 20k, and selling price is 30k.

The selling price is attributed to the cash, inventory (clothings for retail sale), and goodwill. Since, none of these is depreciable assets, is there still any point in filing for the 754 election? My understanding is that you file for the election to get higher depreciation for the new partner.

Conversely, what are the advantages of not filing for the election?

Many thanks in advance!

Regards,
Min

[Bees Knees]

Welcome to the message board.

Section 754 is basically a timing issue. Nobody gets something from nothing. Thus, eventually the accumulated gains or losses come out equal in the end. It’s a matter of how soon you want something and what character you want it to be (depreciation, Section 1245 gain, Section 1231 gain, capital losses, etc).

TTB page 20-9 in the Deluxe Edition and SB4-11 in the Small Business Edition has a Section 754 Election Example that illustrates the tax consequences with and without a Section 754 Election. In the end, both with and without the election, the accumulated gain is the same. It is the in-between transactions that differ with or without the election.

[minli98]

Hi Bees Knees,

Thank you so much for your help. I am looking forward to learning from and contributing to this board.

Regards,
Min