New 2019 Form 1065 Instructions for Sections 754, 734(b) and 743(b) reporting.

[Helper]

(1) There should be a line on the K-1 input worksheet for a 743(b) adjustment (Box 13, new code V), that would then carry through to Sch K with the "from K-1" indication.  This should work the same as ProSeries has handled Section 754 depreciation coming from a K-1 which adds the “from K-1” designation to Section 754 Depreciation if inputed in the K-1 worksheet.  The same should apply to positive income adjustments (Box 11F) and asset basis adjustments (Box 20AH) under the new 2019 Form 1065 instructions.

Indicating whether something is from a K-1 or not can be important (and is in line with IRS instructions in various other contexts)).  For instance, if 754 depreciation is reported on the forms as NOT coming from a K-1, that indicates that the partnership in question owns assets and is making the basis adjustment and subsequent annual depreciation, or appreciation, adjustments to income even though that may not be the case if a lower tier partnership that owns the assets is actually making the adjustment and reporting it on K-1’s.

(2) It appears to me that the code choices in Proseries for Sch K, Line 13C (754 depreciation) and 13D (754 amortization) were always unnecessary as these could only be a W “other deduction.” and none of the other choices could apply.  This is in accordance with 2018 and prior Form 1065 instructions which appear to only address the issue under "Effect of Section 754(b) Basis Adjustment on Partnership" and call for the use of Code 13W.  The 2019 instructions no longer refer to the use of Code 13W for Section 743(b) income adjustments, and do not refer to Section 734(b) income adjustments at all.

(3) There does not appear to be any reason for Proseries to distinguish between Section 754 depreciation and amortization on Sch K, Line 13C (754 depreciation) and 13D (754 amortization).  The 2019 Form 1065 instructions use the generic term “adjustment” to refer to an adjustment to income (positive or negative) of any type (whether depreciation, amortization or some other type) when referring to Section 743(b) income adjustments – although the instructions do not address Section 734(b) income adjustment.

(4) There stills appears no provision for reporting INCREASES to INCOME for 734(B) (NOT 743(b)) adjustments in either Form 1065 instructions or Proseries. Prior to 2019, nowhere in Proseries or the Form 1065 instructions was the possibility of an increase to INCOME adjustment contemplated.  To the best of my understanding, there are two types of adjustments: an adjustment to the basis of ASSETS and subsequent adjustments to INCOME (which were seemingly sometimes confused in the IRS instructions).

           In the FIRST year an adjustment to the BASIS OF ASSETS is made (either UP OR DOWN) under either Section 743(b) or 734(b).  Therefore this adjustment does not affect income and would not be an income/deduction item on Sch K.  This adjustment is referenced in Question 10c on Form 1065 (attach a statement).  Previous to 2019 there was nothing in Form 1065 instructions regarding a specific Box, line or code to use to report the adjustment to the basis of assets.  The asset basis adjustment was reported in the first year on a statement. Nor did the adjustment to the basis of assets, or the current net balance, need to be reported after the first year.  2019 Form 1065 instructions now say to report and code this asset basis adjustment as Box 20, Code AH.  The new Form 1065 instructions also add that the remaining net asset basis balance should be reported in SUBSEQUENT YEARS under Box 20, Code AH.

           In the FIRST AND SUBSEQUENT years, a there is an adjustment to income.  The income adjustment could be a decrease to income (e.g. depreciation if the basis of assets was adjusted up) OR an increase to income (if basis of assets was adjusted down).  Prior to 2019 only a decrease to income (754 depreciation or amortization) was contemplated by Form 1065 instructions or Proseries and reported in Box 13W in accordance with the Form instructions.  In the 2019 instructions, an increase to income for a 743(b) adjustment is now reported in Box 11F and a decrease to income in Box 13V.  This continues to leave out a place to report Section 734(b) income increases.  This also may leave out Section 734(b) decreases to income adjustments unless they are meant to be input in ProSeries on Sch K, Line 13C (754 depreciation) and 13D (754 amortization) but the Form 1065 instructions no longer reference the use of Code 13W for Section 743(b) purposes and do not mention reporting Section 734(b) income adjustments at all.

[Helper]

Correction:

"Effect of Section 754(b) Basis Adjustment on Partnership" in paragraph 2 should read:

"Effect of Section 743(b) Basis Adjustment on Partnership Items"

[Helper]

(5) On further reflection, Proseries should consider eliminating Code 13W for use at all for Section 754, 743(b) or 734(b) income adjustments.  Code 13W was referenced in 2018 and prior Form 1065 instructions in the context of Section 743(b) reporting.  New 2019 Form 1065 instructions specify other codes to be used for Section 743(b) reporting as set forth above.  The reference to Code 13W is eliminated.  No Form 1065 instructions are given regarding Section 734(b) income/deduction adjustment reporting nor were any given in the past.  To avoid confusion, it may be best to eliminate the Code 13W reporting and do not make any provision for 734(b) income/deduction adjustments as it appears that this has always been the case and the new 2019 Form 1065 instructions continue to be silent regarding 734(b) reporting.

[Helper]

(5) On further reflection, Proseries should consider eliminating Code 13W for use at all for Section 754, 743(b) or 734(b) income adjustments.  Code 13W was referenced in 2018 and prior Form 1065 instructions in the context of Section 743(b) reporting.  New 2019 Form 1065 instructions specify other codes to be used for Section 743(b) reporting as set forth above.  The reference to Code 13W is eliminated.  No Form 1065 instructions are given regarding Section 734(b) income/deduction adjustment reporting nor were any given in the past.  To avoid confusion, it may be best to eliminate the Code 13W reporting and do not make any provision for 734(b) income/deduction adjustments as it appears that this has always been the case and the new 2019 Form 1065 instructions continue to be silent regarding 734(b) reporting.

[anepcar]

If I am making an election for Section 754 in proseries, I am setting up new assets for the difference in the step-up basis and depreciating the new assets over their useful life starting with year one. When I setup the assets in the worksheet, I am selecting section 743(b) adjustment for it to be reported on box 13 code V as other deductions. If I look at the partners capital account in tax basis the system is not making any adjustment for  the amount on box 13 to reduce the basis, is there an error in the system . 

If I enter in the K1 worksheet the step-up basis for the section 754 in other adjustments the system does not do anything with the figure, I have to go to section M2 make the adjustment there and do the special allocation to the partner who is being affected by the step-up basis. 

Thanks for any feedback.  

[skybluetax]

Anecpar - I'm running into the same issue.  Did you figure out how to handle it?

[anepcar]

Skybluetax-You will have to create a new asset for the amount under section 754, make sure you check mark the section 754 adj and 743(b) adj under the asset worksheet, The amount being depreciated for the setup basis will not transfer to page one of the 1065 but to schedule k. Under schedule k where the step up bases is being reflect, you will have to make a special allocation to which ever partner that amount belongs to. By doing this it will also reflect the correct amount on your k-1 for the partner being affected along with the correct codes. The special allocation allocation will have to be setup under the schedule k-1 worksheet. 

You may also have to make an adjustment to you schedule m1 depending how you are booking it in your books. I did not reflect this deprecation on the books so I had to make the adjustment on the schedule m1 in order to reconcile to the tax return.

Hope this information helps you, good luck.