Where Do Shareholder and Partner Loans Go on Schedule L?
Loans to owners are an asset: line 7 on Form 1120 and 1120-S, line 7a on Form 1065. Loans from owners are a liability: line 19 on Form 1120 and 1120-S, line 19a on Form 1065, with all nonrecourse loans on line 18. The two directions are reported separately and are never netted.
| Trial balance account | Where it goes on the return | Watch for |
|---|---|---|
| Due from shareholder | 1120 and 1120-S Schedule L line 7 | Loans to shareholders |
| Due from partner | 1065 Schedule L line 7a | Loans to partners |
| Due to shareholder | 1120 and 1120-S Schedule L line 19 | Loans from shareholders |
| Due to partner | 1065 Schedule L line 19a | Loans from partners |
| All nonrecourse loans | 1065 Schedule L line 18 | Its own line on a partnership |
| Bank debt | Line 17 or 20 by term (16 or 19b on a 1065) | Not an owner loan |
| Interest on the loan | Interest expense, and income to the owner | Below market rate is a problem |
| Partner share of liabilities | Schedule K-1 item K | Affects basis and loss limits |
One account at a time works until there are 200 of them.
Try it freeWhere Do Shareholder and Partner Loans Go on Schedule L? on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder (the account this page is about) | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense | 21,500.00 | |
| 6900 | Other operating expenses | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Other operating expenses | 3,400.00 | |
| Due to shareholder | 3,400.00 |
| Account | Debit | Credit |
|---|---|---|
| Shareholder distributions | 12,000.00 | |
| Due from shareholder | 12,000.00 |
Four lines, because the form wants to see them
The return gives owner loans dedicated lines in both directions. That is deliberate: these are exactly the balances a reviewer looks at, and burying them in other assets or other liabilities understates the line the form asks about.
Corporate returns: line 7 for loans to shareholders, line 19 for loans from shareholders.
Partnership return: line 7a for loans to partners, line 19a for loans from partners, and line 18 for all nonrecourse loans, which has no corporate equivalent.
Do not net the two directions
If an owner owes the company under one arrangement and is owed under another, both sides belong on the balance sheet. Netting them hides the position, and the position is the point.
Whether it is really a loan
The reporting is easy. The question that matters is whether the balance survives as debt, and the factors are the ones a court would weigh: a written note, a stated rate at or above the applicable federal rate, interest actually accrued, repayments that happen, and a balance that trends down rather than up.
A balance that grows every year with no note, no interest and no repayment is not a loan in substance:
- On a C corporation it can be recharacterized as a dividend, taxable to the shareholder and not deductible by the company
- On an S corporation it is usually recharacterized as a distribution, which affects basis, or as compensation, which brings payroll tax
- Either way it is better reclassified before filing than after a notice
The basis consequences
On an S corporation, a direct loan from the shareholder creates debt basis, which can absorb losses once stock basis is exhausted. A bank loan the shareholder merely guaranteed does not, because a guarantee is not an economic outlay.
Repayment is not always neutral either. Where debt basis has been reduced by losses, repaying the loan can produce income to the shareholder, which clients experience as being taxed on getting their own money back.
On a partnership, the liability allocation reported in item K of each K-1 feeds outside basis, which decides how much loss a partner can deduct. Classifying a loan the partners personally guaranteed as nonrecourse, or omitting it, produces K-1s that misstate basis.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L line 7 for loans to, line 19 for loans from |
| Form 1120S | Schedule L line 7 and line 19, with line 19 relevant to debt basis |
| Form 1065 | Schedule L line 7a and line 19a, nonrecourse on line 18, with Schedule K-1 item K |
Common questions
What line are loans from shareholders on Schedule L?
Line 19 on Form 1120 and Form 1120-S. On Form 1065, loans from partners are line 19a, and all nonrecourse loans have their own line 18.
Where do loans to shareholders go?
Line 7 on Form 1120 and Form 1120-S, and line 7a on Form 1065 for loans to partners. They are assets, reported separately from loans in the other direction.
Can I net amounts due to and due from an owner?
No. The return reports each direction on its own line, and netting them hides the balances the form specifically asks about.
Does a shareholder loan create basis?
A direct loan from the shareholder to an S corporation creates debt basis that can absorb losses after stock basis is used up. A bank loan the shareholder only guaranteed does not, because a guarantee is not an economic outlay.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 18, 2026.