Value of inherited partnership

[Kea]

Client inherited 50% share of partnership. Appraisal of land and buildings was done. It shows the total value and a reduced value for her "undivided 50% interest." The appraiser's report said that client's value was less than half the total since it would be difficult to sell an undivided 1/2 interest.

When I report this on the 706, do I report 50% of the total or do I use the reduced value? If so, how do I show the difference?

EDIT: Never mind. I found that answer (show total back out difference due to lack of control or marketability).

But still need help with:

Also, the instructions say to include balance sheets for the past 5 years. The partner that prepared the balance sheets never adjusted the values of the assets over the years. The original partners inherited it in the 1970s. The land value is now increased over 10 times. The buildings and equipment were all fully depreciated. (Balance sheet listed original price and accumulated depreciation, zeroing that out.) Do I have to re-do the balance sheets? Will that cause a problem with the partnership returns previously filed? The income & expenses should have been reported correctly.

Thanks.

[kcjenkins]

You do not adjust the balance sheet when the value of an asset goes up. Only when there is a purchase, or a sale or other disposal. So the value did not change until the death of the partner, when the value would reflect the step up in basis due to the inheritance. That does not change older balance sheets.

[Kea]

Thanks KC, that makes my life much easier! The only thing I'll do then is type them up. The photocopies of the handwritten ones are very hard to read.

Also, the step-up in basis will not be done inside the partnership. Primarily because the partner who keeps the books and does their taxes wouldn't understand that. Always keeps everything nice and simple. But it works. I'll just handle all the changes on my client's individual return. I'm sure I'll have more questions, but at least I'll understand the answers.

One other item I noticed on their partnership return was the box that asked about the assets being over $1 million. They checked "No." They aren't per the balance sheet, but the land has gone up in value significantly is now is over that limit. Should that now change even if the balance sheets don't show that? Just curious since I don't have any experience with partnership returns. (However, in the future I may end up with this one and possibly one that I inherited. I'm content with others doing those for now.)

Thanks so much!!

[Terry D EA]

I think you need to refer back to KC's response. Even though the land has increased in value, the balance sheet amounts don't change again until there is a disposition of the asset. The step-up in basis occurs at the time of the inheritance.

[Kea]

Thanks!