All Forum Posts by: Eric Clance

Thank you, that's a great start. It appears I'd be labeled by the IRS as the fiduciary of the SDIRA, so therefore I'd not be acting in its best interest by not enforcing the terms of the note. That had not yet "clicked" in my research. The answer to one question would answer them all. Does the IRS consider the collateral attached to a promissory note as being "owned" by the SDIRA? My first thought would be not so the same rules don't apply unless the lender forecloses at which time it would be owned by the SDIRA and the prohibited transaction rules would be clear.

Thank you for your response. You seem to be quite the SDIRA expert. That's exactly what I was looking for. Please refer me to the tax codes that make any of these things a violation. Those are the answers I'm looking for: legal ones, not moral ones. All great deals should be based on what specific laws/rules pertain to that specific arrangement. Afterall, you wouldn't play baseball using the rules of football. Thank you in advance for pointing me towards the codes that make it a violation to do any of these things with a property my SDIRA does not own and with a person not considered disqualified. 

Thanks Jason! Part of what you talked about is what makes it so confusing. Other than staying at the property, I wouldn’t be benefiting from any of the others. She would be benefiting. It would be the opposite for me. It would cost me time and money. But then again, I’m also curious about staying there since my SDIRA doesn’t own the property. It seems like a rabbit hole!

I'm interested in opinions regarding the tax laws of SDIRA's.

I'm considering loaning my fiancé $100k from my SDIRA so she can pay off the current short-term loan she used to purchase an investment property. This loan would be an 18-month, interest only, with ballon payment, promissory note secured by deed of trust on this investment property. 

Because we are engaged but don't plan to actually get married, therefore not disqualified, I want to help her as much as possible with the property and finances. Will any of the below items I plan on doing be considered self-dealing or prohibited transactions?

1. Provide myself as "unpaid" labor for the renovation process.

2. Manage the purchase of materials for the renovation.

3. Upon renovation completion, give her my furniture to furnish the property as a short-term rental.

4. Help to clean the property between guests.

5. Spend nights together at the property.

6. I also plan to insist she stop making the interest payments since it's all our money anyway. Nor will I require her to make the ballon payment although the promissory note will stay in place indefinitely.

I know all of these would be self-dealing/prohibited transactions if my SDIRA had purchased the property, but it didn't. The only connection is that it's the security for the promissory note so that's where the confusion is. I've also heard reference to "sweetheart deals" not being allowed but I've only seen that in relation to the percent of interest charged on the loan. I will be charging a market rate although I won't be enforcing payment.

I know the violation penalties are stiff, so I definitely want to stay within the laws. That's why I'd like to find out what I can and can't do and I haven't been able to find any answers online for this type of transaction. The one thing that would make the answers simple is, does the IRS consider the SDIRA the owner of a property that is only the security on a promissory note? That would make all my concerns violations of tax laws. 

Thanks for any input and especially if you can point me towards the specific tax code addressing a situation like this!

I'm looking for the most knowledgeable attorney or tax professional who would know if specific things would be considered self-dealing. Who do you recommend? 

Thank you