Loan Guarantees

[Snaggletooth]

A subchapter S shareholder cannot add Corporation loans to his basis even if he guarantees them. And most banks for shareholders that WE deal with insist that the shareholder guarantee the loan.

Assume corporation defaults on a loan, and bank calls the loan from the shareholder. When shareholder pays such a loan, does his basis increase by the amount paid?

I think yes, but only by the amount paid. The entirety of the loan is not added, unless that is what was paid. Typically, shareholder only pays enough to bring loan current.

[Jiggers]

I believe that only what he pays is added to the basis.

The proper way for the shareholder to have a paper trail for the basis would be to loan the company the funds, and the company write the check for the loan payment.

Of course all proper documention is needed: Loan with interest stated, and corporate minutes.

You can't be took careful when it comes to basis calculations.

[BHoffman]

A subchapter S shareholder cannot add Corporation loans to his basis even if he guarantees them. And most banks for shareholders that WE deal with insist that the shareholder guarantee the loan.

Assume corporation defaults on a loan, and bank calls the loan from the shareholder. When shareholder pays such a loan, does his basis increase by the amount paid?

I think yes, but only by the amount paid. The entirety of the loan is not added, unless that is what was paid. Typically, shareholder only pays enough to bring loan current.

Agree with Jiggers

Hi Snags - It would be best, I think, to have the shareholder deposit personal funds into the corporate account and use those funds to repay the bank loan with a corporate check to the bank.

It effectively converts the bank loan to a "Loan from Shareholder" and shows a paper trail. Having the shareholder directly pay debts owed by the Corp (or vice versa) confuses things. Better to move money between the Shareholder and the Corp, and then have the correct entity actually transact with the third party.