Allocating partnership depreciation between trusts and beneficiaries: a trust owning depreciable property through a partnership may have a larger income tax burden than if it owned the assets directly. This article reviews how partnership depreciation is allocated between a trust and beneficiaries and the trap that may result.

Tax Adviser, The, July, 2007 by Ransome, Justin P.

EXECUTIVE SUMMARY

* A trust partner must separately account for its share of partnership depreciation deductions, when doing so would result in a different tax liability than if not separately accounted.

* Sec. 167 provides that the depreciation deduction is to be apportioned between the estate and its heirs, legatees and devisees on the basis of estate income allocated to each.

* Most partnerships do not separately state depreciation, because the only partners with potentially different income tax liabilities would be trusts or estates.

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Many trustees do not ...