Calculating Partnership Partner's Basis

[Terry D EA]

When calculating the ending partner basis, one of the items to consider is a reduction in recourse liability. My partners have seven loans on seven rental properties that they are personally liable for. So, for each year they make payments reducing the balance of each loan, should their basis be reduced by the amount of principal paid on the loans? Seems to make sense to me but would like other opinions.

[Mr. Pencil]

should their basis be reduced by the amount of principal paid on the loans?

Are all seven partners your clients? I wouldn't expect the partnership itself to track individual basis. A reduction in partnership liabilities increases capital accounts, if that's the question.

Decrease in any partnership liability will decrease the partner's basis. The share of liability is in section K of the K-1. And of course the interest payments reduce taxable income which in a sense also reduces basis. Perhaps more important, at least for a general partner who is personally liable, paying down a recourse loan will decrease the at-risk basis.

[mcb39]

Agree with Mr Pencil.............

[Terry D EA]

Maybe I wasm't clear but there are two partners and the partnership owns seven properties. Six of these properties have recourse loans guaranteed by both of the partners which I know the liabilitiy adds to their basis. I have their initial investment(s) amounts plus one of the properties they paid cash for and immediately turned over to the partnership. I have asked for the balance of the six mortgages so I can reduce their individual basis and adjust capital. I just wanted to be sure I was on the right track. The partnership experienced a loss this year and I have been retained for accounting purposes as well as complete the tax return. Thanks for your input.