I want to purchase a property with my SD IRA and intend to bring in a partner to help with the down payment. Any experience out there with equity vs debt partners? If we do a joint venture, what are the tax implications for both of us knowing I am using my IRA and he is not. The deal will be non-recourse seller financing. How are the bills paid and income received?
So long as the JV partner is not a disqualified party, it is going to work just like any other real estate partnership. The IRA has it's piece and it's income/tax profile and the partner will have theirs.
With respect to the IRA, it will receive it's share of the income. Because you plan to use leverage, the percentage of that income that is debt-financed will be considered Unrelated Debt-Financed Income (UDFI) and subject to some nominal taxation. The IRA should still very much see the benefits of leverage and a higher cash-on-cash return.
So, if the deal is 70% debt-financed and the IRA is a 50/50 partner, then 70% of the IRA's 50% cut of income (and deductions) will be considered relative to UDFI.
Get with your CPA to dive into the details and understand what recordkeeping and filing requirements your IRA will have.
The concept of such a deal works. You just want to be sure your particular deal works for your IRA.
A joint venture (i.e. partnership) is usually defined as two or more parties coming together intending to pool resources and share profits.
Generally you would have a Form 1065 filing obligation. Your SD IRA and your partner would both be issued K-1s.
Might make sense to form an LLC for this venture, best to consult an attorney.
If you decide to partner you may have a hard time finding a lender willing to lend to such partnership. It would be easier for your partner to simply lend money to your IRA, you two will have to agree on the terms.
@Dmitriy Fomichenko exit strategy includes a refinance at the five year mark and me buying his portion back. That way I could get the required loan from a lender. I do like your mention of bringing him on as a debt partner though.
If your strategy is to buy the other person out and your Ira own it completely with a refi in 5 years I would not joint venture or form an LLC. That strategy will make your partner a disqualified person(partner) so you most likely would be committing a prohibited transaction by buying him out. As @Dmitriy Fomichenko suggested Make it debt, not equity, and then it is easy to refi, payoff the down payment loan, no UDFI, and no worry of prohibited transaction-buying from a partner.