Hard Money Lending with SDIRA Funds.

[Account Closed]

I met a local Hard Money lender that syndicates 6-12 month Hard Money loans recently. The interest earned, typically 9% to 12%, is paid out to the members and the syndicator keeps the up front points and handles all the paperwork. My concern is, how will this be treated tax wise? Will my SDIRA investment be subject to UBIT or UDFI?

[Brian Eastman]

@Account Closed

There should be no issues with using SDIRA funds for such transactions.

Interest income is passive in nature and therefore not subject to UBIT - which applied when a tax-exempt entity engages in a trade or business on a regular basis.

UDFI applies when an IRA uses debt-financing, such as the IRA obtaining a mortgage to purchase a rental home.