Partnership abandonment of leasehold improvements

[TammyinBuffalo]

How to enter the abandonment of leasehold improvements on a partnership tax return (ProConnect Tax).  Have recorded the disposition (from the depreciation input area) and the numbers are correct, but they are populating Part I of Form 4797 instead of an Ordinary Loss in Part II of Form 4797.  How do I get this to flow through to Part II instead of Part I of the Form 4797?

[TaxGuyBill]

Why do you think the loss should be ordinary?

[TammyinBuffalo]

An abandonment of property is not treated as a sale or exchange - an abandonment loss is an ordinary loss regardless of whether or not the abandoned asset is a capital asset.  § 1.168(i)-8 (e)(2) If an asset is disposed of by physical abandonment, loss must be recognized in the amount of the adjusted depreciable basis of the asset at the time of the abandonment.  

If I am interpreting this incorrectly, please advise.

Thank you very much!

[TaxGuyBill · Accepted solution]

Interesting.  You are right.  I didn't know that.

§1.168-8 doesn't really say that, but Publication 544 does confirm that it is generally ordinary (I haven't traced where that is based on, but I'm assuming that is correct.

https://www.irs.gov/publications/p544#en_US_2021_publink100072287

As for how to enter it, I don't know if the program has an easy to to all it or not, but a work-around might be to just change the "placed in service" date and make it short-term.

[TammyinBuffalo]

Thanks!!!  Although not thrilled with changing the dates like that on so many assets, it worked!  (Got it to appear as Various for date placed in service which is also accurate.) 

Appreciate the assist.