Would anyone know if you purchased a house with a Self-Directed IRA and put it in an LLC, would you have to prepare annual taxes? It seems to me that you would not have to since it is in an IRA, but because it is an LLC you would have annual taxes - anyone know anything about this?
Is the IRA an LLC member or is the house owned by the LLC with the IRA only holding the mortgage? What was the path the house took to get to the LLC?
You set up the llc based on the Swanson Vrs. Commissioner case. You then fund the llc with your IRA Money. The LLC then purchases the property. On regard to taxes, if the IRA is leveraged, you run into Ubti. You will need to speak with your CPA regarding that.
What is UBTI? I did find out that I would have to set up the LLC based on Swanson vs. Commissioner, but that you for the letting me know what I have to do first, and then 2nd. Entrust did not tell me that part and I think it’s so important. This site is very helpful and so are all of you who participate!
For others who want to know what I am trying to do. I am trying to buy a home with my funds that I currently have in my SEP IRA - I first roll it over to an Self Directed IRA, create an LLC to avoid liability in that rental property, and then fund it with the IRA.
So now I suppose I have to have a property manager and can not participate in management correct?
UBTI is when you leverage your IRA when you buy a property. If you goto the entrust website, you can type ubti into the insites section, and you will find all you need to know. Regarding the property manager, you can’t do the work yourself, aka sweat equity. You can hire the people, but all the money must come out of the IRA. In the case of Entrust, you can fill out a payment authorization letter and have them pay the bills and take in the checks.
If the IRA buys the property, all the documents have to be processed through the administrator. I’ve never done it, but I imagine it can be a pain.
however, your IRA can loan money to the LLC and even take a 2nd mortgage on the property. this would be an easier method to use the IRA for funding although any gain wouldn’t be going back into the IRA.
of course, you can make contributions of any gain back into the IRA, with some limitations. or you could write in a big prepayment penalty on the mortgage so that when the property sells, any gain is wiped out by the penalty that goes into the IRA. Hmmmm…have to think on that one some more.
Buying a property with your IRA through an administrator is not a pain. You fill out the buy direction letter, tell them which title company you are using, and they send the check and you attend closing. I have seen it done a ton of time, and it is not a hard thing to do. I will have to look up the other thing you were discussing.
Regarding the LLC funding. If you have a roth IRA, and you fund an llc which is set up correctly for IRA funding, buy a piece of property, and then sell the piece of property and have a gain, the LLC can give a dividend back into the IRA. If the Roth is over 5 years old, you can then fill out a 72t and take a distribution off the Roth. You have to remember there is a limit on contributions in a given year, but there is no limit on how much earning and IRA can have in a given year. My expert is Carl Fischer, is you want to speak to him, you can call him 772-559-4430.
cool. so in this example, the LLC owns the property and the IRA provides funding (loan)? Or is the IRA an LLC member?
The IRA is the member of the LLC.