When a partnership interest is sold between brothers, are both Section 179 and bonus depreciation available for the purchaser?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
When a partnership interest is sold between brothers, the availability of Section 179 expensing and bonus depreciation (under Section 168(k)) for the purchaser with respect to basis adjustments (such as a Section 743(b) adjustment) is subject to specific anti-churning and related-party rules. The analysis for each is as follows:
1. Section 179 Expensing
Related-Party Limitation:- Section 179(d)(2)(A) provides that property is not considered "acquired by purchase" (and thus is not eligible for Section 179 expensing) if it is acquired from a related person. For this purpose, "related person" includes members of a family, and under Section 267(c)(4), "family" includes brothers and sisters, spouse, ancestors, and lineal descendants.
Application to Sale Between Brothers:- If a partnership interest is sold from one brother to another, the purchaser is acquiring the interest from a related person.- As a result, any basis adjustment to partnership property under Section 743(b) that arises from this sale is not considered to be "acquired by purchase" for Section 179 purposes.- Therefore, the purchaser cannot claim Section 179 expensing on the basis adjustment resulting from the purchase of the partnership interest from his brother.
2. Bonus Depreciation (Section 168(k))
Related-Party and Prior Use Limitations:- Under Section 168(k) and the regulations at Treas. Reg. §1.168(k)-2, bonus depreciation is generally not available for property acquired from a related person as defined in Section 179(d)(2)(A), which includes brothers.- The regulations also require that, for used property, the taxpayer (here, the purchaser) must not have previously used the property, and the property must not be acquired from a related party.
Aggregate vs. Entity Approach:- For partnership basis adjustments (such as Section 743(b)), the prevailing view (supported by policy and analogous rules under Section 197) is that the relatedness and prior use tests are applied at the partner level, not the partnership level.- Thus, the purchaser of the partnership interest is treated as if he directly acquired his share of the partnership’s underlying property from the selling brother.
Application to Sale Between Brothers:- Because the purchaser and seller are brothers, they are related under Section 179(d)(2)(A) and Section 267(c)(4).- Therefore, the basis adjustment under Section 743(b) is not eligible for bonus depreciation under Section 168(k), as it is treated as acquired from a related party.
3. Summary Table
4. Additional Considerations
- The same result would apply to basis adjustments under Section 734(b) (redemptions) and notional adjustments under Section 704(c) (remedial allocations) if the relevant transfer is between related parties.
- If the sale were between unrelated parties, and the purchaser had not previously used the property, both Section 179 and bonus depreciation could potentially be available, subject to other requirements.
Conclusion: When a partnership interest is sold between brothers, neither Section 179 expensing nor bonus depreciation is available to the purchaser for the basis adjustment under Section 743(b), because the acquisition is from a related person as defined in the Internal Revenue Code and Treasury Regulations.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
