Under section 754, a partnership may elect to adjust the basis of partnership property when property is distributed or when a partnership interest is transferred. The purpose of a Section 754 election is to reconcile a new partner's outside and inside basis in the partnership. This election allows the new partner to receive the benefits of depreciation or amortization that he or she may not have received if the election was not made.
The election must be made in a statement that is filed with the partnership's timely filed return (including any extension) for the tax year during which the distribution or transfer occurs. The statement must include:
If the basis of the partnership property has been adjusted for a transferee partner under section 743(b), the partnership must adjust the transferee's distributive share of items of partnership income, deduction, gain, or loss in accordance with Regulations section 1.743-1(j)(3) and (4).
Report the adjustments on an attached statement to Schedule K-1 using the codes for Other Income or Other Deductions. Identify the partnership item being adjusted and the amount of the adjustment. If the adjustments are to partnership items from more than one trade or business, report the adjustments separately from each activity.
You will enter this information into the TaxAct® program as follows: