sale of partnership asset with inside outside basis difference

[bm30003700]

My client has a 50% interest in a partnership. The
partnership's only asset is an office building.

My client's wife passed away in 2003 and the partnership
sold the' building in 2004. He lives in a community
property state, and the office building is located in the
same state.

It is my understanding that the client would have stepped up
basis for 50% of the building if the 50% interest had been
held by he and his wife as community property (ie, 25%
each).

Does the same result occur where my client and his wife held
50% interest, as community property, in the partnership
owning the building. If so, how do I handle the fact that
the K-1 will show the gain on the sale based on the
partnership's lower basis in the property.

Also, how do I know for certain that my client's interest in
the partnership was community property? Does the K-1 need
to show both the name of my client and his spouse, in the
under "Partner's Name on the K-1, along with the words
"community property"

Any and all responses, and suggestions, greatly appreciated

 

[Thomas Healy]

My client has a 50% interest in a partnership. The
partnership's only asset is an office building.

My client's wife passed away in 2003 and the partnership
sold the' building in 2004. He lives in a community
property state, and the office building is located in the
same state.

It is my understanding that the client would have stepped up
basis for 50% of the building if the 50% interest had been
held by he and his wife as community property (ie, 25%
each).

Does the same result occur where my client and his wife held
50% interest, as community property, in the partnership
owning the building. If so, how do I handle the fact that
the K-1 will show the gain on the sale based on the
partnership's lower basis in the property.

Also, how do I know for certain that my client's interest in
the partnership was community property? Does the K-1 need
to show both the name of my client and his spouse, in the
under "Partner's Name on the K-1, along with the words
"community property"

This seems like an excellent opportunity for a Section 754
election to step up the basis of the partnership property
for your benefit.

 

[David Woods, EA, ChFC, CLU]

My client has a 50% interest in a partnership. The
partnership's only asset is an office building.

My client's wife passed away in 2003 and the partnership
sold the' building in 2004. He lives in a community
property state, and the office building is located in the
same state.

It is my understanding that the client would have stepped up
basis for 50% of the building if the 50% interest had been
held by he and his wife as community property (ie, 25%
each).

Does the same result occur where my client and his wife held
50% interest, as community property, in the partnership
owning the building.

It should.

If so, how do I handle the fact that
the K-1 will show the gain on the sale based on the
partnership's lower basis in the property.

The same way you show any sale. On Sch. D or 4797 or
wherever the K-1 instructs you to report the gain. Outside
basis is irrelevant to inside activity unless there is
appreciated property contributions involved.

Also, how do I know for certain that my client's interest in
the partnership was community property?

State law?

Does the K-1 need
to show both the name of my client and his spouse, in the
under "Partner's Name on the K-1, along with the words
"community property"

How can you have community property where there is only one
surviving spouse? You have one spouse here, not two. One
owner, not two.