Partnership Question

[Tal10]

Hi all. I have a client who passed away in February 2021. He was a 50% member of a partnership that owns rental real estate. His interest in the partnership after he passed went to his 2 kids. Just before he passed a property was sold by the partnership resulting in a $500,000 net section 1231 loss. I'm working on the 2021 partnership returns. If I'm using weighted averages for transfer of interests, do his kids really get the benefit of this loss? Or is there some regulation out there preventing this? Thanks for any input!

[DANRVAN]

There are two acceptable method that I am aware of; interim closing in regards to the deceased on date of death,  and the proration method.

The proration method is not allowed for extraordinary items such as the $500,000 loss you referred to.  Therefore the allocation is made on date of ownership under either method.

See reg 1.706-4 for details.

[Tal10]

Thanks for your reply! I didn't think the government would be so generous. I will read through the reg. I've never come across such a scenario.