Replies to This Discussion

Permalink Reply by Grice on October 1, 2008 at 0:25

Wouldn't that be a disqualified transaction under code 4975? I would think the only thing you would be accomplishing is to change the name on the title, but defer little to none of the taxes. You can invest your (personal) royalties, and yield identical results, without potentially clouding the title.

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Permalink Reply by phaco on October 1, 2008 at 0:47

I don't know. I should have further clarified the ownership. The assets are actually owned by an LLP whose general partner is a LLC. So, it is not a transfer from an "disqualified person". The self managed IRA of course has to act through an intermediary company.

I am supposed to meet with the CPA next week, so thank you for your comments.

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Permalink Reply by HMI on October 1, 2008 at 2:30

Phaco,

I think you're likely to find that they'll determine this to be "self- dealing". Even though ownership may be an LLP or LLC - those are both passs through entities for the purpose of taxation and income. Even dealing with family members is prohibited in many cases and in those cases taxation isn't flow through to you.

Interesting topic though. I like the idea of the Self-directed IRA buying hard assets. let us know what call they make.


HMI

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Permalink Reply by phaco on October 1, 2008 at 13:38

Thanks for the input. Should I buy additional land/minerals I should buy them with my IRA. Cool. If my CPA tells me different, I will post it for all to see.

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Permalink Reply by Goodas Ican on October 1, 2008 at 7:04

You can check with www.theentrustgroup.com. That's who I have my self-directed IRA through and they specialize in real estate transactions through IRA's. They should be able to tell you if it is a prohibited transaction. I just recently purchased some vacant land in my Roth IRA and hope to negotiate a lease deal in the near future. I purchased it from an unrelated person so it is not a prohibited transaction. All expenses must be paid through the IRA and all income generated must go into the IRA. The people at Entrust are very helpful with all the details.

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Permalink Reply by Goodas Ican on October 1, 2008 at 7:08

This nice part about the Roth IRA is my lease payment and royalties will be tax free now AND later when I take distributions in retirement.

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Permalink Reply by HMI on October 1, 2008 at 11:51

Very true Goodas Ican. I know the folks at Entrust myself and can recommend them.

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Permalink Reply by HMI on October 1, 2008 at 13:43

Phaco,

Check this out:

"Who is a disqualified person?
The IRA holder and his or her spouse, the IRA holders ancestors, lineal descendants and their spouses; investment advisors and managers, any corporation, partnership, trust or estate in which the IRA holder has a 50% or greater interest; and anyone providing services to the IRA such as a trustee or custodian."

I think the LLP and the LLC will be out if you own 50% or more interest in them. Check out this website, it has a wealth of info on self-directed IRAs: http://www.myrealestateira.com/faq.php

Hope it helps you.

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Permalink Reply by Goodas Ican on October 1, 2008 at 14:03

Notice that the disqualified person does NOT include brothers or sisters of the IRA holder.....only ancestors and lineal descendants and their spouses.

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Permalink Reply by phaco on October 1, 2008 at 14:25

Thank you. You all are a great resource.

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Permalink Reply by HMI on October 1, 2008 at 15:12

Also thought you may want to take this into consideration:

"What are some types and examples of prohibited transactions and / or self-dealing transactions?
You can't purchase a home from your daughter or purchase a property from yourself that you already own. You can only invest in new properties and purchase properties from an individual who is not considered a disqualified person. A disqualified person is a person who is a direct descendant.
You purchase a vacation home, hunting property or a golf course as an investment for your IRA but you yourself cannot personally use it. All the purchases made by the IRA LLC MUST be for investment purposes only. You cannot perform maintenance on a property that your IRA owns and pay yourself for work that you do on the property such as repairing a leaking faucet."

That little caviot about not being able to use a property yourself may be something to keep in mind depending on what you have intended for the property. It'd be a shame to find out you can't sit in your favorite duck blind or deer stand because your IRA now owns it.

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Permalink Reply by keb on October 1, 2008 at 16:09

Dear HMI,
thanks for this info. I find this very helpful and it answered some questions I had in mind.
You guys keep up the good work!

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