Discussion:Partner basis
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Discussion Forum Index --> Tax Questions --> Partner basis
| 12 May 2006 | |
| The third partner in a partnership (50%) ownership, has loaned the partnership 150K. The other two partners have only contributed 15K together and each have 25%. There is a large loss the first year. I am assuming that the loan made to the partnership is basis to all, in the ratio of ownership. It is a recourse loan. The 150K loan is the only contribution the third partner has put in. As the partnership pays the loan down, his percentage of ownership will also decrease until he is totally out of the partnership. I am
questioning the losses taken against the 150K loan. When the third partner is decreasing his ownership and the loan is being paid off, is there income because the loan is loosing basis because of the losses taken against it. If there is income, would it be capital gain? L/T if over a year? Thank you | |
| 12 May 2006 | |
| I am not too clear how the partnership is repaying this loan. It is generating taxable income and then distributing cash out to one partner to repay his loan? | |
| 12 May 2006 | |
| Yes, the partnership will probably generate income starting in 2006 and will start repaying the third partner with some of the income. | |
| 13 May 2006 | |
| I'm not too clear on how we have a recourse loan, however if 50% percent partner has in effect made loans to the other two who have then contributed to the partnership, opening basis would be 82,500, 41,250, 41250. Losses and loan repayments would reduce everyone's basis prorata. | |
Chautauqua (talk|edits) said: | 14 May 2006 |
| Surely there is a written partnership agreement? If not, ask the partnership to draw up a draft of one, without your input. Then review the draft, have their attorney review the draft, and make suggested changes. The agreement should at a minimum define 1) Capital contributed by each partner, 2) Profit percents, 3) Loss percents, and 4) How loans from partners are treated. Don't make the assumptions that you are making. Let the partnership agreement spell it out. | |
| 15 May 2006 | |
| Hi how does one pay down a loan to a partnership and have his ownership percentage reduced at the same time? Sounds like a great deal. Why be a partner to begin with? Facts need explaining and need to read partnership agreement to get any sense of whats going on. bye | |
| 15 May 2006 | |
| WesR makes good points. Partners (together with advisors) need to decide how much of the 150k is debt and how much is equity contribution. It all cannot be both and it cannot be "kind of one, kind of another". Seems like that is what partners are thinking. If partners are not experienced in these matters, they set up unworkable arrangements and don't realize they are not workable. Tax advisor(s), need to educate the partners. | |
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