SDIRA lending- How much is too much?

[Rodney Miller]

I know that the IRS frowns on running flipping businesses out of your SDIRA. How is private lending viewed by the IRS? Is there a point to where you are considered a Lending business and become subject to UBIT?

[Brian Eastman]

In general, lending produces passive interest income that will not have a UBIT component.  

The bigger concern is whether your IRA is simply lending, or if you are really acting as a lending business. The latter has more to do with service structure than frequency. If you are doing a lot of advertising and hustle, or doing loan workouts, that can be viewed as providing services to the IRA.

There are also certain thresholds set by state law that may categorize lending as a more commercial enterprise and create licensing requirements or possibly even shift some of the income such as origination fees into an earned income classification.  

The best path would be to discuss your strategy with a CPA or attorney familiar with the lending laws in your state. If a lender not using IRA funds would be considered to be generating earned income, that will be something exposed to UBIT in an IRA. More importantly, it would likely indicate a level of personal involvement that could cross lines on self-dealing rules for the IRA.

So you know, there is no "X number of loans" threshold.  It is all "facts and circumstances" evaluation if the IRS decides to take a closer look.