Schedule K-1 (Form 1065) - Section 754 in Box 13 Code W

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:"

  1. From within your TaxAct return (Online or Desktop), click Federal (on smaller devices, click in the top left corner of your screen, then click Federal).
  2. Click the Business Income dropdown, then click Partnership income (Form 1065 Schedule K-1).
  3. Click + Add Partnership Schedule K-1 to create a new copy of the form or click Edit to review a form already created (desktop program: click Review instead of Edit).
  4. On the screen titled Partnership - Business Name, type your information in the field below Partnership name followed by " - sec. 754 adjust." as written in the IRS form instructions (example: "ABC Partnership - sec. 754 adjust.").  Enter your information in the other fields on the screen, then click Continue.
  5. On the screen titled Partnership - Schedule K-1 Information, click the Checkbox next to Box 1 - Ordinary business income (loss).
  6. On the screen titled Partnership - Ordinary Income, enter your amount in the field below 1 - Ordinary income or loss (if the adjustment is a deduction, enter it as a negative amount).
  7. On the screen titled Partnership - Material Participant, if the amount must be treated as non-passive, click the Circle next to Material participant.

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

Visit the IRS FAQs for Internal Revenue Code (IRC) Sec. 754 Election and Revocation webpage for more information.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.