Tax Implications in Having a SDIRA when Purchasing a Property with Partial Debt

[Eric Grunfeld]

Good Evening Everybody,

Does anybody know what are the tax implications if you are making a down payment from your SDIRA on a property that is partially financed with debt?

For example the loan on the property is issued at a 70% LTV (and you as the investor pay the 30%). Are there any tax issues related to this? Does the IRS view this as a distribution and therefore the investor incurs a tax liability?

Also can one still obtain the tax benefits if your deal is structured this way (ex. able to obtain depreciation and interest expense write-offs?)

I know that this question is geared more towards a CPA  but I must not be the first person to be going through this kind of matter. 

Thank you everyone and look forward to your thoughts.

All the best,

Eric 

[Dmitriy Fomichenko]

@Eric Grunfeld,

If you buying this property personally - you will not be able to use IRA funds for a down payment.

If you have a self-directed IRA and wish to buy this property in your IRA - that would be possible. It is also possible to finance this purchase, but the loan must be non-recourse (IRS rules prohibit personal guarantee). Typically non-recourse lenders will require 30-40% down. You won't be able to claim any tax benefits since you don't own the property (IRA is a separate legal entity). 

Portion of the income from leveraged real estate in an IRA will be subject to Unrelated Business Income Tax, self-directed Solo 401k on the other hand is exempt from UBIT on leveraged real estate, so this would be a better option if you are eligible.