A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the distributee partner's basis in distributed property is increased or decreased from the inside basis the partnership held in those assets. The election is made by the partnership each year in which it is necessary to
adjust a partner's share of the inside basis of partnership assets; in a year in which an unfavorable result would arise, the partnership can forgo making the election.

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A § 754 election, once made, is not made on a year-by-year basis. Instead, it remains in effect for all subsequent tax years until it is revoked. The election allows for an adjustment to the basis of partnership property when there is a distribution of property or a transfer of a partnership interest, but it is not an annual election.

A § 754 Election Is Made for a Tax Year