The partnership borrowed the money. That does not make all the interest deductible.

The partnership borrowed the money. That does not make all the interest deductible.

On a $1 million loan at 6% for a full year, an owner who invests $600,000 and spends $400,000 personally generally has $36,000 of investment interest and $24,000 of nondeductible personal interest.

Before accepting that result, check the partnership’s expenditures. An eligible allocation to otherwise-unfinanced rental expenditures in the same tax year could change the $24,000 to rental interest. The deduction still faces applicable limits.

Plan the use of the proceeds (and document it) before the return is being prepared.

Today's Daily Tax Planning Strategy shows planning with the interest tracing rules.

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