Loss on SR IRA property sale

[David Held]

Good afternoon. My CPA has raised concerns about two properties I may be selling and I'm hoping someone may be able to shed some light on the situation. Approximately one year ago, we purchased an old golf course with the intention of building rental units there which we were going to hold for a long time. The property was comprised of two separate parcels. One parcel was purchased through my SD IRA and the other was purchased by my LLC. We had no initial intentions to develop the parcel owned by the SD IRA with the hope being that our successful project next door would result in a substantial increase in value and we would just sell that parcel rather than deal with the complications of trying to build there through the SD IRA. The purchase price of the SD IRA parcel was admittedly higher than the fair market value at the time, but we were also going to add substantial value with the project next door. Fast forward to today and the substantial increases in construction costs and financing in our area make the project no longer feasible. I have spent the last year changing zoning regulations and completing preliminary engineering work for the project to move forward so at least in my mind our intent has been clearly established that this is an investment property. I was approached by a friend who wants to buy both parcels to build his own family estate there but he needs to finance the purchase so the sale price of each separate parcel has to be based on fair market value as it exists today. The concerns expressed by our CPA relate to the fact that the SD IRA will take a significant loss on the sale of that parcel and there will also be a significant gain on the other parcel. In my mind, the SD IRA loss is no different than a stock investor who took a risky bet and lost. If it's possible, I'd hope to do a 1031 on the LLC parcel to put off the taxes. In a perfect world, we could use suspended passive losses to offset the gain, but I doubt that's possible since we never got to the point of receiving rental income from the property. Any thoughts are appreciated.