UDFI and Deprciation in SDIRA Account - Trying to Understand

[Daniel Dietz]

I think I am starting to figure this out due to all the great help here on BP and some great books on SDIRAs too, but just want to make sure as we are some serious talks with a motivated seller about our next purchases.

I understand the concept that when I use leverage in the form of a non-recourse loan in a SDIRA that their will be tax due on the percent of profits that are *related to that financing*. What I am wondering is where does *depreciation* play into things? Is it the same ratio as the percentage of lending?

Example (I'll round numbers for ease);

• Buy property for 250K
• 100K down from SDIRAs, 150K Non-recourse loan @ 5.75%/20 years (60% financed)
• 30K Income, 13K Operating Expenses, 9K Interest,
• "Net Income" for taxes of 8K (before depreciation which would be 12K on whole thing)

.........................................................

• Does this the we would take 60% of the 8K "Net Income" or $4800 and then take off 60% of the 12K depreciation or $7200 to have a negative net income of $2400? If so, I assume no UDFI tax due then? 

I just want to make sure I am understanding this right as we work towards a formal offer. I WILL be reaching out to a few of the Pros here at BP to help us along once things proceed a bit more. 

Thanks for all the help, Dan Dietz