I respectfully and strongly disagree with that the idea that you include changes in nonrecourse debt in your basis calculation ONLY for the purpose of determining how to handle a distribution when your basis goes to zero. First, generally speaking, nonrecourse debt of a partnership is debt a partner is not liable for. They are not "on the hook" for repaying it. The partner bears no risk of economic loss. So how can increases or decreases in a partnership's nonrecourse debt affect a partner's basis? Secondly, if somehow you argue that a partner's share of a partnership's nonrecourse loans should be included in the partner's basis, then that treatment should be consistent. The partner's share of nonrecourse loans for which they somehow bear an economic risk of loss should be included in their basis when the partner buys into the partnership, when they sell that interest, or whenever that economic risk of loss arises or disappears. This should not be a "shadow basis calculation" that occurs only when the partner's basis goes to zero. Also, as HACKITOFF noted, Section 752 deals with the calculation of basis. Example 1 of 26 CFR section 1.752-1 at https://www.law.cornell.edu/cfr/text/26/1.752-1 states "Only the net increase or decrease in B's share of the liabilities of the partnership and B's individual liabilities is taken into account in applying section 752." If the partner never assumes any additional personal liability for partnership loans, he cannot include these loans (particularly nonrecourse loans) in his basis calculation. A quote from https://www.dbbllc.com/newsletters/focus/jun2012/partnership-tax-rules-%E2%80%93-basis-partnership-l... says " Nonrecourse liabilities can provide basis for distributions." Perhaps they are referring to "bad boy guarantees" as described in https://mazarsusa.com/ledger/bad-boy-guarantees-recourse-or-nonrecourse-debt/, but for a limited partner in a publicly traded partnership, this doesn't apply.
