For purposes of adjusting at-risk basis, income includes tax-exempt income, and deductions include nondeductible expenses. In a real estate context, an increase of qualified nonrecourse financing increases the taxpayer's basis.

Do loans increase a partner's basis?

Debt only creates basis temporarily. It increases basis when the debt is incurred and it decreases basis when it is paid off. The distributions from the partnership remain tax-free as long as there is enough debt allocated to create basis to the partner taking the distributions.

What increases partnership basis?

The partner's basis is increased by the following items: The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. The partner's distributive share of taxable and nontaxable partnership income.