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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > tax implications of partnership loan interest
Expert: Ivan Roth - 10/20/2009
Question
QUESTION: If a partner finances the business though a loan and collects interest on that loan, is the interest a deductible expense to the business and if so, does the partnership have to issue him a 1099-int so he claims the income on his tax return. It is an LLC.
ANSWER: Hi Steven yes to all
---------- FOLLOW-UP ----------
QUESTION: Thank you for your prompt response. Correct me if I am wrong, but under this scenario, the partner would receive a tax benefit of the interest deduction based on his equity ratio (50%) but would pay taxes on 100% of the interest income. From his perspective, would it be better for him to take it as draw and not expense the interest?
Answer
Hi Steven if the partner contributes capital then the partnership agreement would have to be followed relating to partner's draws also watch out for the IRS rules regarding implied interest, ie, if the partner borowed the funds and is taking an interest deduction.
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