1065 partnership return. We loaned money to the business. Now, how do I treat this on my taxes when the business makes money and pays us back?

[kevin15]

My father-in-law and I are partners in a business. We file a 1065 partnership tax return. We have both have had to loan money to the business over the years, but this year, but business did well, and now the business has been able to pay us back some of the money we loaned. How do I handle this situation on my tax return. Does the business have to pay taxes on the money it pays back to us?  Where does this go on the tax return, and where does it go on the balance sheet on the tax return?

[PatriciaV · Accepted solution]

In general, partner loans to a business are recorded as liabilities like other loans, and accrue interest at market rates. Principal payments are not deductible to the partnership and not income to the recipient. Interest paid with the principal is deducted as interest expense by the partnership and reported as interest income by the partners.

[ed 49]

Using TurboTax Business, where do I record a loan from a partner to the partnership (what form and how to access it)?

[RobertB4444]

@ed 49  A loan from the partner is recorded on the balance sheet of the 1065.  It is a liability to the business because the business owes it back to the partner.