Looking for guidance on appropriately partnering my SDIRA LLC with my business LLC for a real estate purchase on a fix-n-flip. My understanding is that this partnership can take place, despite being a disallowed person, as long as the partnering takes place at the time of purchase. I would be using the SDIRA LLC as essentially gap funds for the difference that my business LLC falls short despite a hard money loan being utilized for securing the property.
1) Is this transaction permitted, and would the SDIRA LLC be subject to UBIT since a hard money loan would be utilized on the property even if flowing through the business LLC? Or does that not matter for a hard money loan since it's secured by the property of which both LLCs are partnering on when it comes to UBIT?
2) Let's say the split was 20/80 or 10/90 (SDIRA LLC/Business LLC) does it matter who pays which expenses (for instance EMD, closing costs, rehab costs, mortgage payments, utilities/insurance, etc.) as long as the equitable split remains the same for the transaction expenses and the profits upon resell?
3) Is a separate agreement between the SDIRA LLC and business LLC required for the equitable split or does the title company handle that process during closing?
You need to be very careful doing what you have suggested.
I will be glad to discuss because there are many potential problems in this scenario. Pm me if you need more specific info-see below
UBIT will apply because it is a flip.
UDFI may also come in to play with the hard money loan.
Ira money can not go through your business account. Prohibited
You may be getting a benefit from your Ira personally. Prohibited
I’m not sure if you are personally signing for the loan or if it is a non recourse loan.
The $$ splits have to consistent to the prorata shares for all expenses.
What you propose would disqualify your IRA. IRS rules are very clear: as "Disqualified Person" you are not allowed to provide any services to your IRA nor receive any direct or indirect benefit from the IRA.
If my understanding of your description is correct - what you are proposing would violate those rules. And remember that regardless of what you may read on the internet - you will be responsible for all transactions in your IRA.
There are many legitimate ways to invest your IRA funds without bringing disqualified person into transaction.
Thank you both for your replies/guidance as it is greatly appreciated!