Does qualified nonrecourse debt give you basis?

Does qualified nonrecourse debt give you basis?

Unlike the provision on distributions in excess of basis, basis under the at-risk limitations only includes debt if it is either qualified nonrecourse debt or if the debt is recourse debt and the partner is personally liable for this debt, as is the case for general partners.

What are qualified nonrecourse liabilities?

The definition of qualified nonrecourse financing is not that difficult to understand. It represents debt that is secured by real property that is used in the activity of holding real property. In addition, qualified nonrecourse financing represents financing for which no one is personally liable for repayment.

Do LLC members get basis for qualified nonrecourse debt?

A member’s share of any qualified nonrecourse financing is determined on the basis of that member’s share of LLC liabilities incurred in connection with such financing, within the meaning of Code § 752.

How is qualified nonrecourse debt allocated?

Generally, excess nonrecourse liabilities are allocated to the partners in proportion to how they share profits. The partnership may specify in the partnership agreement each partner’s share of profits for purposes of allocating excess nonrecourse liabilities.

Do nonrecourse liabilities increase outside basis?

The liability is therefore bifurcated into a nonrecourse portion and a recourse portion that increases the guaranteeing partner’s outside basis.

Can you take distributions against debt basis?

Debt basis cannot be used to make tax-free distributions after stock basis is reduced to zero. Thus, a shareholder increases stock basis to the extent of distributions and losses, while increasing debt basis by the excess positive adjustments.

Is PPP loan recourse or nonrecourse debt?

PPP loans are considered non-recourse, meaning the PPP loan itself does increase basis but not at-risk basis.

Does nonrecourse liabilities increase basis?

Are LLC liabilities nonrecourse?

LLC liabilities are generally allocated to partners in a manner similar to nonrecourse liabilities. A partnership liability is nonrecourse if no partner, or person related to a partner, bears the economic risk of loss.

Are LLC liabilities recourse or nonrecourse?

Under Regulation Section 1752-2 a debt is recourse to a member of an LLC if that member (partner) bears the risk of economic loss for the applicable liability. The debt is nonrecourse if no member or partner bears the risk of economic loss.

How are recourse liabilities allocated?

A partnership generally allocates recourse liabilities to the partner(s) that ultimately bear the economic obligation to pay the partnership’s liability if the partnership becomes completely worthless.

Is qualified nonrecourse debt at risk?

For a taxpayer to be considered at risk under section 465(b)(6), qualified nonrecourse financing must be secured only by real property used in the activity of holding real property. For this purpose, however, property that is incidental to the activity of holding real property will be disregarded.