question to bob w

[theresa d]

bob i thought i'd start a new thread concerning the stockholder loan\contribution to s corp. maybe you could clarify something i'm confused about. since a shareholder cannot build up basis on a loan quarantee for an s corp, i have read the suggestion that it could be more beneficial for the shareholder to take the loan out personally and loan the proceeds to the s corp. this way the shareholder would increase basis. the s corp would record interest expense and the shareholder would pick up the income.

on the shareholder's return the income picked up is offset by the interest expense the corp recorded. how does the shareholder ever deduct the interest on the loan he took out? apparently it can't be deducted as investment interest. is the only benefit to this scenario increasing basis but the downside is incurring interest expense that can't be deducted?

[BOB W]

That is ...........

.......... the way I understand it to work.

But, if the loan is from an equity line of credit secured by the borrowers home, the first $100,000 of loan of this type of interest is deductible as home mortgage interest.

Doing it this way you would get the full deduction.

[theresa d]

thanks bob

for the response