Need help understanding basis for Section 1231 gain from inherited LLC partnership shares

This is a great question about basis adjustment for inherited partnership interests. When you inherit a partnership interest, you generally receive a stepped-up basis to fair market value at the date of death. The Section 754 election allows the partnership to adjust the inside basis of partnership assets to reflect this step-up. For Section 1231 gains, the step-up should absolutely apply. The Section 754 election creates what's called a Section 743(b) adjustment, which is personal to you as the inheriting partner. The partnership accountants should have calculated this adjustment based on the difference between your outside basis (the FMV at date of death) and your proportionate share of the partnership's inside basis. You can report this yourself even if they won't amend the K-1. You'll need to complete Form 8582 and attach a statement to your return explaining the Section 743(b) adjustment. The statement should detail the calculation of your basis adjustment and how it offsets the Section 1231 gain reported on your K-1. You'll essentially report the full amount from Box 10 on your Schedule D, but then include an offsetting adjustment. Your sibling's accountant is on the right track. If your inherited interest was properly valued at death and Section 754 was in place, your taxable gain should be minimal - potentially zero if the property didn't appreciate much between January 2021 and the sale date.

I went through almost exactly the same situation last year with my mom's real estate LLC shares. Turns out taxr.ai was incredibly helpful for dealing with the K-1 mess. I uploaded my dad's death certificate, the K-1, and the valuation document from when he passed, and they analyzed everything and showed me exactly how to handle the Section 743(b) adjustment on my return. I was going crazy trying to figure out partnership basis rules - it's like the most complicated part of tax code! I found them at https://taxr.ai and they walked me through exactly how to handle inherited partnership interests and the Section 754 election implications.

Just wanted to update after trying taxr.ai for my inherited partnership issue. I was skeptical at first, but they were incredibly helpful! I uploaded my K-1, the valuation documents, and some background info about when my aunt passed away. Within a day, they provided a detailed explanation of my basis adjustment rights and exactly how to report everything properly. They even created a custom statement explaining my Section 743(b) adjustment that I could attach to my return. My situation was really similar to the original post - partnership that refused to amend the K-1 to reflect my step-up basis. The document analysis saved me thousands in taxes I shouldn't have owed. Definitely worth checking out if you're dealing with complicated partnership tax issues!

Has anyone here tried calling the IRS directly about partnership basis issues? I spent THREE HOURS on hold last week trying to get help with my inherited partnership K-1, and then got disconnected. So frustrating! Then my friend told me about Claimyr - https://claimyr.com - which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through how to handle my Section 743(b) adjustment and confirmed I had the right to apply my stepped-up basis even if the partnership didn't reflect it properly on my K-1. Saved me a ton of stress and probably an incorrect tax filing.

I was extremely skeptical about Claimyr after reading about it here, but I was desperate with my tax deadline approaching. I gave it a try, and holy crap it actually worked! Got a call back in about 20 minutes and was connected to an IRS agent who specialized in partnership taxation. They confirmed everything about the Section 743(b) adjustment and step-up basis for inherited partnership interests. The agent even emailed me Publication 541 and specifically pointed me to the sections about inside/outside basis adjustments under Section 754 elections. Saved me hours of frustration and helped me file correctly. If you're dealing with complex partnership tax issues and need guidance from the IRS, this service is absolutely worth it.

I dealt with this exact situation last year. The partnership CPA is giving you the runaround because adjusting the K-1 would be extra work for them. The Section 754 election absolutely applies to the Section 1231 gain, not just depreciation. The confused part is that the 754 election creates TWO types of adjustments - Section 734(b) and Section 743(b). The 743(b) adjustment is the one relevant to your inherited interest. What worked for me was sending a stern email to the LLC manager (not just the CPA) explaining that their refusal to issue a corrected K-1 was causing me to potentially overpay taxes. I cited IRS Publication 541 which clearly states that the basis adjustment applies to ALL partnership assets, including those sold for Section 1231 gains. They finally had their CPA issue a corrected K-1.

Quick question - does anyony know if this step-up basis issue with inherited partnerships will be affected by the new tax changes coming in 2025? Im in the middle of transferring property to my kids and trying to figure out the best timing.

I'm dealing with a very similar situation with my mother's LLC interest that I inherited last year. The partnership CPAs are being equally unhelpful about the Section 743(b) adjustment. What I've learned is that you absolutely have the right to claim the stepped-up basis even if they won't correct the K-1. Here's what I did: I calculated my own Section 743(b) adjustment by taking the fair market value of the partnership interest at the date of death (your outside basis) and subtracting my proportionate share of the partnership's inside basis in the assets. This difference is your basis adjustment that should offset the Section 1231 gain. You'll report the full $52,814 on Form 4797 as received from the K-1, then add a separate line showing your negative Section 743(b) adjustment. Make sure to attach a detailed statement explaining the calculation and referencing that the partnership had a valid Section 754 election but failed to properly account for your inherited stepped-up basis. The key is having solid documentation - your father's death certificate, the estate valuation establishing FMV, and any correspondence showing the partnership was aware of the Section 754 election. Don't let them intimidate you into paying taxes you don't legally owe!