Partner K-1 Line 13 Section 754 Depreciation Adjustment

[peggysioux5]

I have a new client who is a partner in rental partnership who has a 754 election from 2016 due to the death of her husband and step-up in basis for rental.  I have not dealt with Section 754 election in the past so have been researching the handling of the election.  The research that I found shows a deduction on the partner's tax return should be reflected for the depreciation of the stepped-upped asset on page 2 of Schedule E.  The previous tax preparer shows an amount on K-1 on line 13 with code "W".  However, there is no coinciding entry on partner's individual tax return and the amount on line 13 of the K-1 is not included in line 2 of the K1.  Could other tax preparers enlighten me as to why the K-1 entry from line 13 would not flow to the individual tax return?  The 754 election mechanics does seem to be complex so I definitely could be missing something.  The other issue that has me puzzled is that even though the 754 election applied to wife, the previous tax preparer split the 754 election amount of depreciation between both remaining partners (again neither of those entries flowed to individual tax returns).  Shouldn't the full depreciation amount be reflected on wife's K1 rather than only 50%?

PeggySioux

[DANRVAN]

On 4/23/2022 at 2:54 PM, peggysioux5 said:

  The previous tax preparer shows an amount on K-1 on line 13 with code "W".  However, there is no coinciding entry on partner's individual tax return and the amount on line 13 of the K-1 is not included in line 2 of the

The amount on line 13 of the K-1 is netted with the amounts in box 1 and 2 of the K-1 and should flow to Schedule E page two as a lump sum.

 

On 4/23/2022 at 2:54 PM, peggysioux5 said:

Shouldn't the full depreciation amount be reflected on wife's K1 rather than only 50%?

That is correct.