Internal Revenue Code · 26 U.S.C.
§ 743. Special rules where section 754 election or substantial built-in loss
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 743
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- October 4, 1976 by Pub. L. 94–455
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 3 dated changes in the source credit
- Length
- 6 subsections · 1,139 words · about 5 min to read
- Defines
- 2 terms
- Cross-references
- cites 5; cited by 6 Code sections and 56 other regulations
- Regulations
- 1 issued under this section
The basis of partnership property shall not be adjusted as the result of a transfer of an interest in a partnership by sale or exchange or on the death of a partner unless the election provided by section 754 (relating to optional adjustment to basis of partnership property) is in effect with respect to such partnership or unless the partnership has a substantial built-in loss immediately after such transfer.
The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules provided in section 755.
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of paragraph (1) and section 734(d), including regulations aggregating related partnerships and disregarding property acquired by the partnership in an attempt to avoid such purposes.
For purposes of this section, an electing investment partnership shall not be treated as having a substantial built-in loss with respect to any transfer occurring while the election under paragraph (6)(A) is in effect.
In the case of a transfer of an interest in an electing investment partnership, the transferee partner’s distributive share of losses (without regard to gains) from the sale or exchange of partnership property shall not be allowed except to the extent that it is established that such losses exceed the loss (if any) recognized by the transferor (or any prior transferor to the extent not fully offset by a prior disallowance under this paragraph) on the transfer of the partnership interest.
Losses disallowed under paragraph (2) shall not decrease the transferee partner’s basis in the partnership interest.
In the case of a transferee partner whose basis in property distributed by the partnership is reduced under section 732(a)(2), the amount of the loss recognized by the transferor on the transfer of the partnership interest which is taken into account under paragraph (2) shall be reduced by the amount of such basis reduction.
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection, including regulations for applying this subsection to tiered partnerships.
For purposes of this section, a securitization partnership shall not be treated as having a substantial built-in loss with respect to any transfer.
For purposes of paragraph (1), the term “securitization partnership” means any partnership the sole business activity of which is to issue securities which provide for a fixed principal (or similar) amount and which are primarily serviced by the cash flows of a discrete pool (either fixed or revolving) of receivables or other financial assets that by their terms convert into cash in a finite period, but only if the sponsor of the pool reasonably believes that the receivables and other financial assets comprising the pool are not acquired so as to be disposed of.
(Aug. 16, 1954, ch. 736, 68A Stat. 249; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, § 71(b), July 18, 1984, 98 Stat. 589; Pub. L. 108–357, title VIII, § 833(b)(1)–(4)(A), (5), (6)(A), Oct. 22, 2004, 118 Stat. 1589, 1591; Pub. L. 115–97, title I, §§ 13502(a), 13504(b)(2), Dec. 22, 2017, 131 Stat. 2141, 2142.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 743
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 5 other sections
- § 754 Manner of electing optional adjustment to basis of partnership property
- § 704(c) Partner’s distributive share
- § 755 Rules for allocation of basis
- § 734(d) Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
- § 732(a)(2) Basis of distributed property other than money
Cited by 6 Code sections
- § 732(d) Basis of distributed property other than money
- § 734(d)(2) Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
- § 754 Manner of electing optional adjustment to basis of partnership property
- § 755(a) Rules for allocation of basis
- § 761(e)(2) Terms defined
- § 6031(f) Return of partnership income
Cited in 56 regulations not issued under it
- § 1.48-12 Qualified rehabilitated building; expenditures incurred after December 31, 1981.
- § 1.58-2 General rules for conduit entities; partnerships and partners.
- § 1.59A-7 Application of base erosion and anti-abuse tax to partnerships.
- § 1.163(j)-0 Table of contents.
- § 1.163(j)-6 Application of the section 163(j) limitation to partnerships and subchapter S corporations.
- § 1.167(c)-1 Limitations on methods of computing depreciation under section 167(b) (2), (3), and (4).
- § 1.168(k)-0 Table of contents.
- § 1.168(k)-2 Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017.
- § 1.197-0 Table of contents.
- § 1.197-1T Certain elections for intangible property (temporary).
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.199A-0 Table of contents.
- § 1.199A-2 Determination of W-2 wages and unadjusted basis immediately after acquisition of qualified property.
- § 1.250(b)-2 Qualified business asset investment (QBAI).
- § 1.337(d)-3 Gain recognition upon certain partnership transactions involving a partner's stock.
- § 1.337(d)-7 Tax on property owned by a C corporation that becomes property of a RIC or REIT.
- § 1.362-3 Basis of importation property acquired in loss importation transaction.
- § 1.362-4 Basis of loss duplication property.
- § 1.367(a)-1T Transfers to foreign corporations subject to section 367(a): In general (temporary).
- § 1.367(e)-2 Distributions described in section 367(e)(2).
- § 1.460-0 Outline of regulations under section 460.
- § 1.460-4 Methods of accounting for long-term contracts.
- § 1.469-2T Passive activity loss (temporary).
- § 1.514(c)-2 Permitted allocations under section 514(c)(9)(E).
Show 32 more
- § 1.613A-3 Exemption for independent producers and royalty owners.
- § 1.704-1 Partner's distributive share.
- § 1.705-2 Basis adjustments coordinating sections 705 and 1032.
- § 1.708-1 Continuation of partnership.
- § 1.731-2 Partnership distributions of marketable securities.
- § 1.732-1 Basis of distributed property other than money.
- § 1.732-2 Special partnership basis of distributed property.
- § 1.734-1 Optional adjustment to basis of undistributed partnership property.
- § 1.734-2 Adjustment after distribution to transferee partner.
- § 1.751-1 Unrealized receivables and inventory items.
- § 1.752-7 Partnership assumption of partner's § 1.752-7 liability on or after June 24, 2003.
- § 1.754-1 Time and manner of making election to adjust basis of partnership property.
- § 1.755-1 Rules for allocation of basis.
- § 1.863-3 Allocation and apportionment of income from certain sales of inventory.
- § 1.864(c)(8)-1 Gain or loss by foreign persons on the disposition of certain partnership interests.
- § 1.884-1 Branch profits tax.
- § 1.901(m)-1 Definitions.
- § 1.901(m)-2 Covered asset acquisitions and relevant foreign assets.
- § 1.901(m)-4 Determination of basis difference.
- § 1.901(m)-5 Basis difference taken into account.
- § 1.901(m)-6 Successor rules.
- § 1.951A-3 Qualified business asset investment.
- § 1.956-4 Certain rules applicable to partnerships.
- § 1.1017-1 Basis reductions following a discharge of indebtedness.
- § 1.1045-1 Application to partnerships.
- § 1.1245-1 General rule for treatment of gain from dispositions of certain depreciable property.
- § 1.1363-2 Recapture of LIFO benefits.
- § 1.1400Z2(c)-1 Investments held for at least 10 years.
- § 1.1446-2 Determining a partnership's effectively connected taxable income allocable to foreign partners under section 704.
- § 1.1502-13 Intercompany transactions.
- § 1.1502-50 Consolidated section 250.
- § 1.6011-18 Certain partnership related-party basis adjustment transactions as transactions of interest.
Amendment history
From the source credit and the official notes, newest first.
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter K Partners and Partnerships
- Part II CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS
- Subpart C Transfers of Interests in a Partnership
Nearby sections
- § 741 Recognition and character of gain or loss on sale or exchange
- § 742 Basis of transferee partner’s interest
- § 743 Special rules where section 754 election or substantial built-in loss
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
References in Text
Section 3(a)(1)(A), (c)(1), (7) of the Investment Company Act of 1940, referred to in subsec. (e)(5)(B), is classified to section 80a–3(a)(1)(A), (c)(1), (7) of Title 15, Commerce and Trade.
Amendments
2017—Subsec. (d)(1). Pub. L. 115–97, § 13502(a), amended par. (1) generally. Prior to amendment, text read as follows: “For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in a partnership if the partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of such property.”
Subsec. (e)(4) to (7). Pub. L. 115–97, § 13504(b)(2), redesignated pars. (5) to (7) as (4) to (6), respectively, and struck out former par. (4). Prior to amendment, text of par. (4) read as follows: “This subsection shall be applied without regard to any termination of a partnership under section 708(b)(1)(B).”
2004—Pub. L. 108–357, § 833(b)(6)(A), substituted “Special rules where section 754 election or substantial built-in loss” for “Optional adjustment to basis of partnership property” in section catchline.
Subsec. (a). Pub. L. 108–357, § 833(b)(1), inserted “or unless the partnership has a substantial built-in loss immediately after such transfer” before period at end.
Subsec. (b). Pub. L. 108–357, § 833(b)(2), inserted “or which has a substantial built-in loss immediately after such transfer” after “section 754 is in effect” in introductory provisions.
Subsec. (d). Pub. L. 108–357, § 833(b)(3), added subsec. (d).
Subsec. (e). Pub. L. 108–357, § 833(b)(4)(A), added subsec. (e).
Subsec. (f). Pub. L. 108–357, § 833(b)(5), added subsec. (f).
1984—Subsec. (b). Pub. L. 98–369 substituted “property contributed to the partnership by a partner, section 704(c) (relating to contributed property) shall apply in determining such share” for “an agreement described in section 704(c)(2) (relating to effect of partnership agreement on contributed property), such share shall be determined by taking such agreement into account” in penultimate sentence.
1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Pub. L. 115–97, title I, § 13502(b), Dec. 22, 2017, 131 Stat. 2141, provided that: “The amendments made by this section [amending this section] shall apply to transfers of partnership interests after December 31, 2017.”
Amendment by section 13504(b)(2) of Pub. L. 115–97 applicable to partnership taxable years beginning after Dec. 31, 2017, see section 13504(c) of Pub. L. 115–97, set out as a note under section 168 of this title.
Effective Date of 2004 Amendment
Pub. L. 108–357, title VIII, § 833(d)(2), Oct. 22, 2004, 118 Stat. 1592, provided that:
“(A) In general.— Except as provided in subparagraph (B), the amendments made by subsection (b) [amending this section and section 6031 of this title] shall apply to transfers after the date of the enactment of this Act [Oct. 22, 2004].“(B) Transition rule.— In the case of an electing investment partnership which is in existence on June 4, 2004, section 743(e)(6)(H) [now 743(e)(5)(H)] of the Internal Revenue Code of 1986, as added by this section, shall not apply to such partnership and section 743(e)(6)(I) [now 743(e)(5)(I)] of such Code, as so added, shall be applied by substituting ‘20 years’ for ‘15 years’.”
Effective Date of 1984 Amendment
Amendment by Pub. L. 98–369 applicable with respect to property contributed to the partnership after Mar. 31, 1984, in taxable years ending after such date, see section 71(c) of Pub. L. 98–369, set out as a note under section 704 of this title.