This would be taxable event, you have to appraise the property and that amount will be reported to you as ordinary income by the IRA custodian. 

That's ordinary income, taxed at the recipients marginal rate.

It is my understanding that the loan needs to be repaid within 60 days or the outstanding balance will be subject to a 10% penalty & taxed as ordinary income.

@Brit FosheeAh.

Short term ordinary taxable income if there is a gain?

Any interest they receive, of course, will be taxed at their ordinary income rate and it will take away any child tax credits and stuff they would normally qualify for, if the interest they receive is more than $600/yr each.   

My take on tax is that if the $15k is treated as rent, ordinary income tax rate applies; if it is treated as purchase price reduction which lowers the cost basis, capital gain tax rate applies as you have held it for more than one year.

Well, there won't be any cap gains, it'll be ordinary income.....development/flipping verses long term investment gains.

Long term capital gains - you pay 15% or 20% when you sell the buy and hold (or defer it with a 1031) but your ordinary rate when you flip. 

It's also secured so that ordinary tenant abuse can't bring it crashing down on top of anyone.