Section 754 Optional Basis Adjustment Election

IRC §754

Allows a partnership to adjust the inside basis of its assets to match the outside basis of a partner's interest upon a transfer or distribution. This effectively allows an incoming partner to 'step up' their share of the partnership's depreciable assets to fair market value.

Eligibility

Available to partnerships when a partnership interest is transferred by sale or exchange, or upon the death of a partner, or when property is distributed to a partner.

Frequently Asked Questions

Who is eligible for the Section 754 Optional Basis Adjustment Election?

Available to partnerships when a partnership interest is transferred by sale or exchange, or upon the death of a partner, or when property is distributed to a partner.

How does the Section 754 Optional Basis Adjustment Election work?

Allows a partnership to adjust the inside basis of its assets to match the outside basis of a partner's interest upon a transfer or distribution. This effectively allows an incoming partner to 'step up' their share of the partnership's depreciable assets to fair market value.

What law authorizes the Section 754 Optional Basis Adjustment Election?

The Section 754 Optional Basis Adjustment Election is authorized under IRC §754 of the Internal Revenue Code (Title 26, United States Code).

Statutory Text — IRC §754

Source: Internal Revenue Code, Title 26, United States Code

§ 754. Manner of electing optional adjustment to basis of partnership property If a partnership files an election, in accordance with regulations prescribed by the Secretary, the basis of partnership property shall be adjusted, in the case of a distribution of property, in the manner provided in section 734 and, in the case of a transfer of a partnership interest, in the manner provided in section 743. Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which such election was filed and all subsequent taxable years. Such election may be revoked by the partnership, subject to such limitations as may be provided by regulations prescribed by the Secretary. (Aug. 16, 1954, ch. 736, 68A Stat. 251; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) Editorial Notes Amendments1976—Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

Legal Sources

US Code (Official) — 26 USC §754 → Cornell Law Institute — 26 USC §754 → Search IRS.gov for IRC §754 → Treasury Regulations (26 CFR) →

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