754 Election for Personal Property

Technical topics regarding tax preparation.
#1
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Client had 3 member partnership that holds a ranch property. At one point, it was income producing, but has since been transitioned into solely a personal property. The partner that uses the property has since bought out the other 2 members using another entity that the partner owns. The partner plans to keep the property in the partnership but continue to use it as a personal property. In this case, would a step-up in the partnership assets be necessary? Thank you.
 

#2
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austincpa wrote: The partner that uses the property has since bought out the other 2 members using another entity that the partner owns.


Do you still actually have a partnership? If there is but one owner, there is no longer a partnership and no election would be available. That doesn't mean that the assets aren't stepped up, though.
~Captcook
 

#3
Nilodop  
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In this case, would a step-up in the partnership assets be necessary?
Never necessary, often helpful.

Do you still actually have a partnership? If there is but one owner, there is no longer a partnership and no election would be available.
But don't the election and the basis adjustment occur in the (final, in OP facts) year of the partnership when the transaction took place?
 

#4
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Nilodop wrote:Do you still actually have a partnership? If there is but one owner, there is no longer a partnership and no election would be available.
But don't the election and the basis adjustment occur in the (final, in OP facts) year of the partnership when the transaction took place?

That doesn't mean that the assets aren't stepped up, though.
How?


The effects of the election are to push the outside step up in basis into the partnership. That is, the step up happens after the purchase transaction. If the continuing owner is the only remaining owner, no partnership exists after the transaction. So, there's nothing to push the step up into. No election is necessary.
The continuing owner would then use the higher basis on his 1040 activity. That's the step up that still occurs without any action by Sec 754.
~Captcook
 

#5
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See Rev. Rul. 99-6.
 

#6
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CaptCook wrote:
austincpa wrote: The partner that uses the property has since bought out the other 2 members using another entity that the partner owns.


Do you still actually have a partnership? If there is but one owner, there is no longer a partnership and no election would be available. That doesn't mean that the assets aren't stepped up, though.


The owners original share was owned individually, but he acquired the other two interests with an existing S Corporation that he owns and an existing partnership that he is a majority partner in.
 

#7
sjrcpa  
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So there are still 2 or 3 owners now?
 

#8
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There are three owners 1. Individual owner by my client 2. S Corporation owned 100% by my client 3. Partnership (owned 90% by my client and 10% by his father)
 

#9
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Should this enterprise be considered a "partnership" for tax purposes? I'm not sure...
761(a)Partnership. For purposes of this subtitle, the term “partnership” includes a syndicate, group, pool, joint venture or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title [subtitle], a corporation or a trust or estate.

1.761-1(a) Partnership. The term partnership means a partnership as determined under §§301.7701-1, 301.7701-2, and 301.7701-3 of this chapter.

301.7701-2(a) Business Entities. For purposes of this section and § 301.7701-3, a business entity is any entity recognized for federal tax purposes...

301.7701-1(a)(2) Certain joint undertakings give rise to entities for federal tax purposes. A joint venture or other contractual arrangement may create a separate entity for federal tax purposes if the participants carry on a trade, business, financial operation, or venture and divide the profits therefrom....

Not sure there's a partnership without the profit motive in 301.7701-1(a)(2).
 


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