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Under section 754, a partnership may elect to adjust the basis of partnership property when property is distributed or when a partnership interest is transferred. Once an election is made under section 754, it applies both to all distributions and to all transfers made during the tax year and in all subsequent tax years unless the election is revoked. 

Box 13, Code W may represent a variety of deductions and the partnership should provide details regarding the reported amounts. If the amount is a Section 754 adjustment, verify that the amount in Box 13, Code W has not already been included in your K-1 income (box 1 or 2). If the amount is already included in income, no additional entries are required. 

If the amount was not included in your K-1 income, add a separate Schedule K-1 to your TaxAct® return to make the adjustment. The adjustment amount needs to be reported in the same manner as your K-1 income (passive or nonpassive and ordinary or rental). To create the separate Schedule K-1 which will properly report the Section 754 amount from Box 13, Code W:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Business Income to expand the category and then click Partnership income (Form 1065 Schedule K-1)
  3. Click Add to create a new copy of the form
    1. For Partnership name, enter the name of the partnership followed by "sec. 754 adjust." as described in the IRS form instructions (i.e. "[Partnership name] - sec. 754 adjust."). 
    2. For Partnership ID number, enter the partnership's EIN. 
  4. Continue to the screen titled Partnership - Schedule K-1 Information. Check Box 1, then click Continue.
  5. Enter the applicable amount in Box 1 Ordinary Income or Loss
    1. If the adjustment is a deduction, enter it as a negative amount. 
    2. If the amount must be treated as nonpassive, be sure to click Continue and check the box to indicate that you were a material participant.

The amount will then transfer to the appropriate form and line number based on your particular tax situation.

 


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