A book up increases the inside basis of the partnership in an asset that a partner might have sold to a 3rd partner when the price is above the old partnership’s basis. If for example an asset is fully depreciated and a partner sells his interest in the partnership say for $100, then the proportionate share is increased in the inside basis of the partnership with regard to that buying partner. Without it, if the next day the partnership sells the asset then the buyers aliquot portion will reflect a gain of $100 on his Schedule K-1, despite the fact the buying partner paid $100 the day before for the interest, and just got his same $100 the next day. Cash flow wise he has no gain or loss, but the Schedule K-1 shows a $100 gain. If the book up was implemented then the buying partner would not be allocated any gain or loss.

Also, many allocations of income and expense are based on the partner’s capital account. If the capital account of the buying partner is not adjusted, as would be the case if the book up is made, then his capital account would be zero and allocations would not go to him. If the book up is made, his capital account will reflect the $100 purchase