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Partner loans, basis and at risk issue

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Level 3

When an LLC, taxed as a partnership, has a note to one of the partners, does that increase that individual's basis in the LLC?  Second, does that note create and/or increase the individual's "at risk" amount?  In this case, the only (2) two partners husband and wife, so does this effect either answer?

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Level 12

If you loan funds, it did not also increase basis, because it is either loaned or paid in. It cannot fall into both categories.

You seem to be describing that a married couple has invested in their own LLC by treating it as a Loan from only one of the people? In other words, they put themselves in debt to one of themselves? And there is going to be interest paid, so that is debt out and interest income, running their own money in circles?

Where are these people getting their professional guidance from? Sheesh.

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Level 3

Not sure I understand your first sentence response and even moreso the 2nd paragraph.

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Level 12

Just trying to understand the facts and circumstances of what is happening.

@sjrcpa I don't know if being in a community property State matters. I am trying to understand how one partner from the spousal relationship can be lending to the LLC and if there is the expectation of interest income from the repayment, for the LLC that includes the spouse as the only other partner.

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Level 3

I don't think it really matters, as if one of the other partners was NOT related to the partner loaning the money to the ptsp. would still provide basis and at risk amount to the "loaning" partner.  In the case of the married partners, however, if they got a divorce, the loaning partner would still be able to bring action against the ptsp.

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Level 15

@qbteachmt In the partnership tax context, partners get basis for loans.


ex-AllStar
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Level 3

I've had a couple responses from participant and speakers form Spidell Publishing, here in Los Angeles who all say that the loans Do provide basis and increase at-risk amounts (assuming not non-recourse loans), even in this situation with married partners.  This as long as notes are set up and payments with fair rate of interest are charged.

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