sect 754 partnership

[S T]

Partnership, 3 partners each having 1/3 interest in partnership. 2 partners decided to retire and sell.

remaining one partner bought a portion of outgoing partners share and a new partner was admitted. So still qualifies as partnership.

New ratio 80% now to original partner and 20% to new partner buyin.

Section 754 the new partner can receive a increased basis under Sect 754, I am good there if the election is made.

Question, the current partner had a 33 1/3 interest in the partnership and then purchased from the retiring partners another 46.7 interest making his interest in the partnership a total of 80%.

If Sect 754 is elected, does the original partner of 1/3 interest continue to depreciate assets based on 1/3 of original as before and then does he receive consideration for increased basis on the other 46.7% which represents his buyout amount?

If this is true, and then I am trying to figure out how to show on the depreciation schedule and flow through to the K-1 form.

Thanks for any assistance

Sandy

[S T]

Can anyone help with this

Can anyone help with this?

Sandy

[Golden Rocket]

Not Sure

Sandy, I don't know -- but a couple things that might help draw a response:

1. Did any of the original partners contribute anything upon entering the
partnership other than cash?
2. Can you give "rough" dollar amounts as of the change in ownership?
Don't know that this changes anything, but it could crystallize the
situation in the mind of the reader.

[S T]

Original

Original all 3 partners were cash startup and loans acquired. Retiring partnership have some debt relief which I have accounted for on the partners returns. Not a partnership redemption. All handled with the partners outside of the partnership.

On the buyout of the 2 retiring partners, more loan and cash infusion for buyout from existing partner and new partner.

I am looking at whether or not to elect the S754 one for the 20% "new partner" which I understand that.

Where my confusion lays is whether or not the remaining existing parter can also benefit from S754 on the acquired additional percentage of the partnership (additional 46.7%partnership interest) is he eligible for the S754 increase on that 46.7% amount, and how to show for depreciation purposes and report.

These rules are so confusing! So much time expended on this whole mess that won't be billable.

GR thanks so much for replying and bringing up to the top again!

Sandy

[Bees Knees]

Section 754 says in part: "...Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which such election was filed and all subsequent taxable years."

To me, that says once you make the election, all distributions and transfers of interests during the year and all future years must fall under those rules, so I don't think you have a choice other than to include the existing partner's additional interest in the election.

[S T]

Thanks

Thanks Bees, for your confirmation.

I have never used the S754 election before, so I need all of the reinforcement I can find.