Do loans made to a partnership increase a partner's tax basis? Impact on claiming partnership losses

Wait, I'm confused. So the loan DOES increase my basis or it DOESN'T? I thought partner loans to a partnership were treated differently than loans between S-corps and their shareholders. Also, what's the difference between "outside basis" and "at-risk" amount? This is making my head spin.

A loan to the partnership doesn't increase your outside basis in your partnership interest. Outside basis mainly comes from capital contributions, allocated income, and a few other adjustments. The at-risk rules are separate from basis rules - they determine how much of your losses you can actually deduct. Your at-risk amount includes your capital contributions plus any amounts you've personally borrowed and then loaned to the partnership (assuming you're personally liable for those borrowed amounts). So while the loan doesn't increase your outside basis, it does increase your at-risk amount, which can allow you to deduct losses that exceed your outside basis.

Does taxr.ai actually analyze loan documents specifically? I've got a similar situation but with multiple loans made throughout the year. Would it handle something that complex?

I've heard about these AI tax tools but am skeptical. How does it handle state-specific partnership tax issues? My partnership operates in multiple states and I find that most tax software doesn't handle the multi-state aspects properly.

Yes, it absolutely analyzes loan documents! I uploaded both my partnership agreement and several loan documents, and it tracked the impact of each loan separately. It even flagged places where my loan documentation could have been improved to better protect my tax position. For multi-state partnerships, it actually surprised me with how comprehensive it was. It identified how different states treat partnership basis differently and provided state-specific guidance. The analysis included references to state-specific tax provisions that my accountant hadn't mentioned.

How does this service actually work? Is it just connecting you to the IRS phone line or do they do something else? I've been on hold for hours whenever I call.

This sounds too good to be true. I've literally spent DAYS trying to reach someone at the IRS about partnership issues. There's no way you got through in 20 minutes. Are you sure you're not just advertising for them?

The service basically uses an automated system to navigate the IRS phone tree and waits on hold for you. When they reach a human, you get a call connecting you directly to the IRS agent. So you don't have to spend hours listening to hold music or pressing numbers. I understand the skepticism completely. I felt the same way before trying it. But after spending over 12 hours across multiple days trying to reach someone at the IRS, I was desperate. The 20 minutes wasn't from my first call to speaking with an agent - it was the time Claimyr spent on hold after navigating the phone tree. All I did was answer my phone when they connected me to the agent who was already on the line.

Thanks for this list - we do have items 1-3 for sure (formal loan document, 5-year term, and market interest rate). We've only made a few interest payments so far but they're on schedule. Does the partnership need to make any specific tax filings related to the loan? Or just track it in our books properly?

The partnership doesn't need to file any special tax forms specifically for the loan, but it needs to be consistently treated as debt in all your partnership records and tax filings. Make sure the loan shows up as a liability on the partnership's balance sheet (Form 1065, Schedule L) and that interest payments are properly reported. Also, keep documentation of all loan repayments, and make sure they're made according to the terms of your loan agreement. The more your arrangement looks and functions like a traditional third-party loan, the stronger your position if questioned by the IRS.

I second this. I thought I understood partnership taxation until our business grew beyond the simple stage. Tried to handle it myself and made a $22k mistake that we're still sorting out. Get a partnership tax specialist involved early - it's worth the money.

This is really helpful about the timing aspect! I'm new to partnership taxation and didn't realize the timing of when you make the loan during the year could affect your at-risk calculation. Just to clarify - if I made a loan to the partnership in, say, October, but my share of the partnership loss was allocated throughout the entire year, would I still be able to use the full loan amount to support my loss deduction? Or would it be prorated somehow? Also, you mentioned tracking basis adjustments year over year - is there a specific form or worksheet that's recommended for keeping these records? I want to make sure I'm documenting everything properly from the start rather than trying to reconstruct it later.

Good question about the timing! For at-risk purposes, you generally measure your at-risk amount as of the end of the tax year, so if you made the loan in October, you'd still be able to use the full loan amount to support loss deductions for that entire tax year. The losses are allocated based on your ownership percentage throughout the year, but your at-risk calculation is typically done as of December 31st. As for tracking basis adjustments, there isn't an official IRS form for this, but many tax professionals use a basis tracking worksheet that shows: (1) beginning outside basis, (2) your share of income/loss, (3) distributions received, (4) other adjustments, and (5) ending basis. You'll want to track both your outside basis AND your at-risk amounts separately since they follow different rules. I'd strongly recommend setting up a simple spreadsheet now to track these amounts year by year. Include columns for capital contributions, loan balances, allocated income/losses, and distributions. Trust me, trying to reconstruct this information years later for an audit or when you eventually sell your partnership interest is a nightmare you want to avoid!