Partnering with your SD-IRA by guaranteeing debt

[Jon Klaus]

I understand that you can partner with your SD-IRA by investing your after tax cash along with the pre-tax IRA funds. Can you also partner with your IRA by guaranteeing debt?

Scenario: My SD-IRA partners with 2 other (qualified parties) investors via a JV to buy property. No debt. Then we obtain a bank construction loan. Can I sign on that loan? Any different than me personally putting more cash into the deal; partnering with my IRA?

Steven Hamilton II any thoughts?

[Bryan Hancock]

If you personally guarantee debt in any way in a project that is funded by your SDIRA it is going to be considered an "outside benefit" and disallowed.

If you set the project up as you're describing you'll also want to make sure that the ENTIRE interest in the land can be pledged as collateral for the loan. Otherwise the bank will balk at funding the construction loan because the collateral won't be as they wish for it to be.

Note that you'll also likely have UBIT taxation problems. I actually discussed this with a potential investor today and KKO recommended for him to elect to have his newly-formed entity taxed as a c-corp to avoid the trust taxation problems with UBIT. That is the first time I've ever heard of c-corps having dominant taxation status; pretty crazy.

If you need advice on this Jon call me up. I heard you guys closed on that deal with Marisue a few days ago. I hope you do well with it....just not too well since we passed on it :-)