Level 5

sold interest in partnership

Forum|Forum|5 years ago
June 24, 2021
3 replies
21 views

I have a client who husband was a partner in a campground. ( 2 partners, 50% each) He passed away in 2014 and the wife inherited his share of the partnership. The FMV of the property at the date of death was 848,540. The depreciated basis in the property at the date of death was 201,777.

Am I correct that the wife's new partnership basis/capital account back in 2014 should have been stepped up to 1/2 of the FMV at the date of death? ($848,540/2)

In 2020 the wife sold her share of the partnership to the other partner. This sale would be reflected on the wife's 1040 return with the cost basis being her ending Capital Account balance at the time of the sale?

The partnership should be final since now there is only one owner and the remaining partner now reports this activity on a 1040 return.

Thank you in advance

This topic has been closed for replies.

sjrcpa

Level 15

Wife's basis in the partnership at time of husband's death was the FMV of the 50% interest in the partnership. Most likely this was not equal to 50% of the FMV of the underlying real estate.

Wife's basis at time of sale is initial basis plus or minus all of the items of income, loss, deduction, and distributions up to the date of sale. Most likely not the capital account balance.

The more I know the more I don’t know.

J

jlew1229Author

Level 5

The only asset in the partnership is the campground land .

Should there have been a appraisal of the partnership at the date of death to determine FMV of the 50% interest in the partnership?, which I don't believe there was, or since the only asset in the partnership is this land, can I use 50% of the FMV at death? If I can't use the FMV of the RE, and no appraisal was completed for the partnership, do I have any options for a stepped up basis?

The answer the other question, the remaining partner paid as an individual when buying out the partner. Wrote a check to my client.

qbteachmt

Level 15

"The only asset in the partnership is the campground land"

Yes; owned by the Partnership; not Inherited by this spouse.

"Should there have been a appraisal of the partnership at the date of death to determine FMV of the 50% interest in the partnership?, which I don't believe there was, or since the only asset in the partnership is this land, can I use 50% of the FMV at death?"

What about liabilities? Basis from years of operation? Money in the bank is also an Asset.

"If I can't use the FMV of the RE,"

The RE is not what was inherited.

"and no appraisal was completed for the partnership, do I have any options for a stepped up basis?"

Did you read the info at that link?

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BobKamman

Level 15

It's been a long time since I saw one of those and I think it involved a PTP, but as I recall the partnership has to make an election to allow the deceased partner to step up "internal basis." Or something like that. And what was the source of the buyout payment? The partnership itself, or the other partner acting as an individual? I'm glad it's your return and not mine.

qbteachmt

Level 15

I believe this is Bob's recollection:

https://www.irs.gov/businesses/partnerships/faqs-for-internal-revenue-code-irc-sec-754-election-and-revocation

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