Would it be possible to loan money to the partnership through an entity which I control and personally guarantee that debt and then pay back the loan after the first of the year? Are there adverse consequences to doing that? I am fairly certain that the losses allocated to me will exceed my basis and I wanted to figure out a way to take advantage of this (legally) without putting more money into the partnership on a long term basis.
2 Responses to “How can I increase basis in a partnership without making a capital contribution?”
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Generally if you loan the partnership money, you will be increasing your basis. If you do decide to loan money, then it must be fully documented (even if you create another entity to do this). You also need to charge some interest, otherwise the IRS will assume you did the whole thing just to aviod taxes and they will disallow, plus hit you with penalties. If you want to structure the thing, you may want to contact a CPA and give them some particulars.
You can increase your basis by loaning money to the partnership, assuming that you are the partner who is wholly or partly responsible for paying the debt. However, if you take advantage of this to receive a nontaxable distribution this year, then the repayment of the debt after the new year should result in a deemed distribution to you, and the recognition of gain. Alternatively, the IRS could treat the entire transaction as a sham and disallow the use of losses this year.
You should consult a professional advisor (not one who advertises in his Yahoo! Answers!) for additional information.