Section 754 Depreciation

[seville009]

My question involves estate proceedings in the state of: New York

My father died in 2009. He was a 20% general partner in a general partner that owned an apartment complex.

The value of his 20% interest at his date of death was $200,000.

He had a negative capital account at his date of death of about $(100,000).

I have three questions relative to this step up in basis:

(1) the step up in basis is $300,000 - correct?

(2) that $300,000 step up will be allocated to the various classes (land, building, equipment), and then depreciated accordingly - correct?

(3) On my books, how would I set up the value of the asset - would it be the $200,000 value or the $300,000 step up? This part is confusing me because I think that I need to book the $300,000 since that is the new depreciable basis, but that doesn't make sense if the fair market value is only $200,000. If the estate sold it for, say, $200,000, I would think that there would be zero gain or loss, but if I have the $300,000 basis on the books, I would end up showing a $100,000 loss.

Thank you in advance for any guidance.

[Mr. Knowitall]

Under IRC 1014(a), 26 USC 1014, subject to the qualifications found in the statute, basis is stepped up or down to fair market value.

[seville009]

In this case, it was stepped up $300,000 (from a negative basis of $(100,000) to a postive value at the date of death of $200,000).

My confusion has to do with the stepped up figure of $300,000.

Does the estate based the depreciation expense on the $300,000 or on the FMV of $200,000?

Thanks.