1065 to Schedule C due to Death of Partner

[equinecpa]

I'm preparing a 1065 for a husband/wife. Husband died in July, with everything left to his wife. I understand his partnership interest terminated on the date of his death, and hence the partnership terminated.

How do I get the Fixed assets off of the books and to the schedule C. Does the partnership dispose of the assets at tax basis and then the wife pick them up? Is there a bump up in basis?

Would the partnership take a 1/2 year depreciation and then another 1/2 year be reported on the Schedule C?

Trying to find instructions but haven't stumbled on specifics yet.

CArolyn

[oceanlovin'ea]

bump

Just bumping this back up to the top for you.

Linda, EA

[Roland Slugg]

Just bumping this back up to the top for you.

Thanks for doing that, Linda EA ... this post deserves a reply.

You are correct. The partnership terminated when H died, so it was a sole proprietorship for the rest of the year. Take a half year's depreciation on all the MACRS assets on the partnership return (using mid-month for any depreciable real estate). Then just zero-out the partnership's books and pick up everything on the Schedule C's new books. Then on Schedule C take the other half-year's depreciation (or mid-month) on W's 50% basis in the property, plus a half-year's depreciation (or mid-month) on W's new stepped-up basis in the assets inherited from H. (I don't believe those assets qualify for the ¶179 deduction.) If the T/Ps live in a community property state, W may get a step-up in basis on 100% of the assets, not just 50%.

[equinecpa]

Thanks both of you-Linda for the bump and Roland for the reply.

It is a community property state so yes basis gets stepped up 100%. But I don't think there is a FMV step-up as the only asset of any worth is a building -I don't think it has appreciated since 2001.

Now on the 1040, do I need to report the disposition of 1/2 the partnership interest by the husband on Schedule D (reporting no gain or loss).

And on the schedule C do I start the assets at orginal cost and then report an accumulated depreciation figure (like if item was rolled over), or do I start anew with original cost being the acb of the partnership (assuming no step-up).

[equinecpa]

Just bumping for no reply to last question and to add that this occurred in 2010 so does the following apply:

For 2010 only, the stepped-up basis rule is replaced by a carryover basis rule. When you inherit the property, you also inherit the decedent's basis for that property. Therefore, when you sell the property, you will report a gain if the property has appreciated over the decedent's basis. The carryover basis rules are tied to the repeal of the federal estate tax, which will occur only for 2010. The estate tax reappears in 2011 with a $5 million exclusion