Whereas borrowing by a partnership generally increases a partner's basis, borrowing by an S corporation does not affect a shareholder's basis. There are TWO EXCEPTIONS: -If a shareholder loans money to the S corporation, the shareholder will have a loan basis (aka debt basis) -If a shareholder guarantees a loan to the S corporation AND is called upon to make a payment as a result of that guarantee Here's how loan basis (aka debt basis) works: -Any losses passed to the shareholder first reduce the shareholder's stock basis and only then reduce the shareholder's loan basis -If a shareholder's loan basis is decreased, it is later increased (up to the original amount) by any subsequent net increase from basis adjustments (the loan basis is increased before the stock basis is increased) -Distributions in excess of a shareholder's stock basis do NOT decrease the shareholder's loan basis 0:00 Introduction 0:25 The …
