Bringing In A Partner To A Self Directed IRA deal

[Robert Bystrek]

I want to purchase a property with my SD IRA and intend to bring in a partner to help with the down payment. Any experience out there with equity vs debt partners? If we do a joint venture, what are the tax implications for both of us knowing I am using my IRA and he is not. The deal will be non-recourse seller financing. How are the bills paid and income received?

[Brian Eastman]

@Robert Bystrek

So long as the JV partner is not a disqualified party, it is going to work just like any other real estate partnership. The IRA has it's piece and it's income/tax profile and the partner will have theirs.

With respect to the IRA, it will receive it's share of the income. Because you plan to use leverage, the percentage of that income that is debt-financed will be considered Unrelated Debt-Financed Income (UDFI) and subject to some nominal taxation. The IRA should still very much see the benefits of leverage and a higher cash-on-cash return.

So, if the deal is 70% debt-financed and the IRA is a 50/50 partner, then 70% of the IRA's 50% cut of income (and deductions) will be considered relative to UDFI.

Get with your CPA to dive into the details and understand what recordkeeping and filing requirements your IRA will have.

The concept of such a deal works. You just want to be sure your particular deal works for your IRA.