Using a SDIRA on a joint venture property with financing

[SHANELLE SHERLIN]

Hi all,

I am looking to set up a self-directed IRA with money transferred from a previous employer 401(k) to invest in a duplex in OK. The purchase price is $250K and I would be going in with a partner, likely by creating a new LLC. Exit strategy is a long-term hold and refinance in a few years. We would each fund about ~$30K for 20% down payment + closing costs.

I called 3 different self-directed IRA companies to get an idea of how to best structure the roll-over but I'm getting mixed information about how this would trigger the UDFI tax since I am leveraging someone else's $. One person told me that if I created a SDIRA, my profit would be taxed at 80% since we are only putting down 20% and someone else told me 50%, both of which are crazy high and make this deal not worth it. I was also instructed by one person to go the solo (401)k route as it will trigger UDFI but doesn't incur taxes, then someone else said that's incorrect.

Another thought I had was to serve as a private money lender thru my SDIRA and create a quit claim deed as a 50/50 tenants in common, but I’m told this still triggers UDFI?

I’d love some guidance and recommendations on this situation around what percentage of the profit would be taxed, how to best structure this deal if it makes sense, and if the UDFI tax can be written off.

Unfortunately, my CPA isn’t available to connect on this right now and I’ve been in contact with the seller over the past couple of days who is looking to move fast, so hoping the wonderful BiggerPockets community can provide some guidance.

I should also mention that I originally pitched a seller-finance deal as the owner owns the property out-right and I had read online that this could help avoid triggering a UBIT tax, but the seller wasn’t interested.

Really appreciate any help on this. Thanks so much.