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 non-passive and ordinary or rental).
To create the separate Schedule K-1 which will properly report the Section 754 amount from Box 13, code "W:"
- From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
- Click Business Income in the Federal Quick Q&A Topics menu to expand, then click Partnership income (Form 1065 Schedule K-1).
- Click + Add Partnership Schedule K-1 to create a new copy of the form or click Edit to review a form already created.
- Continue with the interview process to enter all of the appropriate information.
- On the screen titled Partnership - Business Name, enter the Partnership name followed by "sec. 754 adjust." as described in the IRS form instructions (i.e. "ABC Partnership - sec. 754 adjust."), enter the Partnership ID number (or EIN), then click Continue.
- On the screen titled Partnership - Schedule K-1 Information, check Box 1 - Ordinary business income (loss), then click Continue.
- On the screen titled Partnership - Ordinary Income, enter the applicable 1 - Ordinary income or loss amount (if the adjustment is a deduction, enter it as a negative amount), then click Continue.
- On the screen titled Partnership - Material Participant, if the amount must be treated as non-passive, select Material participant, then click Continue.
The amount will then transfer to the appropriate form and line number based on your particular tax situation.