How? SDIRA buying in to Rental Business. Splitting Depreciation.

[Carlos Flores]

I am trying to understand how this deal could be structured. Assumptions: new LLC being formed in Texas to buy a multifamily with recourse financing. Three people/entities, one of the three is a SDIRA LLC. Capital injection not equal among the three but monthly distributions (cash flow) and profit on sale will be split equally among the three. Lets not get in to who is doing what, what their injection/contribution is, why the split is this way, etc.

Does it matter if the SDIRA LLC is involved up front in the formation or if it buys in to the "business" after formation (before the asset is acquired)?

Since the SDIRA can't take depreciation, how does this work? Can depreciation be given to one or the other two people?

Anyone doing something similar in Texas or elsewhere?

[David Beard]

Carlos, disproportionate partnership allocations get pretty technical, and you need a tax pro. This is from the IRS audit guide:

"Partners are not able to allocate tax benefits among themselves in a manner that is divorced from their allocation of economic profit or loss. A partner who is economically enriched by an item of partnership income or gain is required to shoulder the associated tax burden. Similarly, a partner who is economically hurt by an item of partnership loss will be allocated the tax benefit of the loss. The tax allocations must ultimately conform to the economics of the partnership’s transactions."

And yes, it may matter whether the SDIRA invests up front, or buys into the LLC later, depending on whether any of the other LLC members are disqualified parties relative to the SDIRA. If there are disqualified parties among members, then the SDIRA needs to invest up front alongside the disqualifed party, but this also gets very technical.