What happens to a partner's existing 743(b) adjustment when they sell their interest in a partnership?

The 743(b) adjustment is specifically tied to your partnership interest, so when you sell that interest, the remaining adjustment essentially becomes part of your tax basis in the partnership interest. When you sell your partnership interest, your adjusted basis (which includes the remaining 743(b) adjustment) is compared against your sales proceeds to determine your gain or loss on the sale. So while you won't continue to benefit from future annual depreciation deductions related to that adjustment, the remaining value does factor into your basis calculation when you sell. The buyer may then be eligible for their own 743(b) adjustment if the partnership has a 754 election in effect at the time of your sale. This would be a completely new adjustment based on the difference between what they paid for the interest and their proportionate share of the partnership's adjusted basis in its assets.

After struggling with partnership tax issues similar to this, I found an amazing tool that helped clarify these complex 743(b) adjustment questions. I was about to sell my interest in a medical office building partnership and was totally confused about how my special basis adjustments would be treated. I uploaded my partnership documents to https://taxr.ai and it analyzed exactly how my 743(b) adjustment would affect my basis upon sale. The system even identified a mistake in how our partnership had been calculating my adjustments. Would have cost me over $45,000 in additional taxes if I hadn't caught it! Their analysis explained that while the adjustment doesn't transfer to the buyer, it does become part of your adjusted basis calculation when determining gain/loss on sale. The tool provided specific calculations showing how my particular 743(b) adjustment affected my specific situation.

I need to eat my words about being skeptical! I decided to try https://taxr.ai for my manufacturing partnership interest sale. Had a $180K 743(b) adjustment from 5 years ago with about $140K remaining when I sold. The analysis was incredibly detailed - showed exactly how the remaining adjustment factored into my outside basis calculation. What really impressed me was that it flagged an issue with how our partnership had been allocating the adjustment between 1245 and 1250 property, which would have affected my recapture calculations. My CPA was actually surprised by the depth of the analysis and agreed with its conclusions. Saved me from overpaying about $22K in taxes by correctly factoring the remaining adjustment into my basis. Really glad I gave it a shot despite my initial skepticism!

I feel your pain trying to figure out 743(b) adjustments! Last year I was selling my interest in a real estate partnership and spent WEEKS trying to get someone from the IRS on the phone to confirm how to handle my remaining basis adjustment. It was impossible - either couldn't get through or was transferred between departments with no resolution. Finally discovered https://claimyr.com and used their service to get through to the IRS Partnership Division. You can see how it works here: https://youtu.be/_kiP6q8DX5c Within 90 minutes of using Claimyr, I was speaking with an IRS partnership specialist who confirmed exactly how to handle the remaining adjustment on my Form 8949 when reporting the sale. Totally worth it after wasting hours on hold previously.

I need to apologize for calling Claimyr a scam. After struggling for two more weeks trying to reach someone at the IRS about my partnership basis issues, I broke down and tried the service. It actually works exactly as described. Their system waited on hold for almost 2.5 hours (which I didn't have to do myself), and then connected me directly with an IRS partnership specialist. Got confirmation about how to handle my remaining 743(b) adjustment when calculating my gain on sale. The specialist confirmed that the remaining adjustment increases my outside basis in the partnership interest, effectively reducing my gain on sale. Would have overpaid my taxes significantly without this clarification. Sorry for being so dismissive initially!

Something to add here that hasn't been mentioned - if you're the selling partner, make sure you get a copy of the partnership's calculation of your 743(b) adjustment AND how much has been used through depreciation/amortization so far. This is critical documentation for determining your correct adjusted basis when calculating gain/loss. I learned this the hard way when selling my interest in a manufacturing partnership. The partnership initially provided incorrect calculations that didn't properly track how much of my adjustment had been used over the 7 years I held the interest. Had to hire a separate CPA to recalculate everything, which delayed my sale by months.

I'm struggling to understand all this partnership basis stuff. I'm buying into a partnership where the previous partner had one of these 743b adjustments. Do I get to use that same adjustment or does it reset for me? Can someone explain in simple terms?

Great question about 743(b) adjustments! I went through something very similar when I sold my interest in a strip mall partnership last year. The key thing to understand is that your remaining 743(b) adjustment doesn't just disappear - it becomes part of your adjusted basis in the partnership interest when you sell. So in your case, that remaining ~$203,000 would increase your basis, which means it reduces your taxable gain (or increases your loss) when you sell. Think of it this way: you originally got the 743(b) adjustment because you paid more for your partnership interest than your proportionate share of the partnership's inside basis. When you sell, that "extra" amount you paid (minus what you've already depreciated) still has value - it's just realized as part of your sale transaction rather than through ongoing annual deductions. Make sure you get detailed documentation from your partnership showing exactly how much of your original adjustment has been used through depreciation. This is crucial for calculating your correct adjusted basis. Also consider having an independent review done if the sale amount is significant - I found a small error in my partnership's calculations that would have cost me several thousand in extra taxes. The buyer won't get your old adjustment, but they may qualify for their own new 743(b) adjustment if the 754 election is still in effect at the time of sale.

Yes, you've got it exactly right! That remaining $180K would indeed increase your adjusted basis in the partnership interest, which directly reduces your taxable gain (or increases your loss) when you sell. This is why the timing and documentation are so critical. What many people don't realize is that this can actually make selling "early" more tax-efficient in some situations, especially if you're in a higher tax bracket now versus what you might be in future years when taking the annual depreciation deductions. You're essentially accelerating the tax benefit of that remaining adjustment. Just be extra careful with the calculations. In my strip mall situation, the partnership had been incorrectly allocating part of my adjustment to land (which doesn't depreciate) versus the building improvements. This error would have overstated my remaining adjustment by about $15K, leading to an incorrect basis calculation on sale. I'd strongly recommend getting those partnership records well before you're ready to sell. Some partnerships are slower than others at providing detailed breakdowns, and you don't want to delay a time-sensitive sale waiting for proper documentation of your adjusted basis.