Self Directed IRAs

General Real Estate Investing
1

Im looking into using a self directed IRA to flip properties. The IRA will most likely invest in (or own) an LLC that flips properties. I suspect that is how it will work, but I am not sure.

Here are some things I really need some clarity on.

  • my wife is a real estate agent. Will the IRS (or someone) have an issue if she handles the transactions.
  • I work for a property management company, that I would like to use to manage/coordinate the rehab. Will the IRS (or someone) have a problem with this

I suspect that on a typical 100K retail sale, my wife may see 3-5K in commissions and the company I work for may receive 3-5K in management fees.

In general, what is the best, cleanest, and most practical way to get this done.

2
- my wife is a real estate agent. Will the IRS (or someone) have an issue if she handles the transactions. - I work for a property management company, that I would like to use to manage/coordinate the rehab. Will the IRS (or someone) have a problem with this

yes

yes

3

Wow, that is what I suspected.

I’ve also spoke with someone from one of the custodian companies, and they said so long as my biz and my wife’s biz were what we regularly do - then that would be ok.

It would be very strange having someone other than my wife handle my real estate transaction. And I guess I would have to pay some other company to “project manage” the rehabs.

4

IRS rules are clear: neither you or your wife can profit in any way from transactions in a self directed IRA.

tell that custodian you need to see a private letter ruling from the IRS advising you that it’s okay.

5

If the IRS rules you have engaged in a prohibited transaction like self-dealing, your IRA is considered fully distributed and you the money is subject to income tax along with any penalties for early withdrawal.

6

I’m definitely not interested in self-dealing or otherwise talking with the IRS. Even if I find some other real estate agent to use, self directing seems like a better alternative (for me) than investing in the stock market.

What about having the IRA as a shareholder in a C-Corp that I work for. I’m being told that this is also an option. I am waiting on confirmation of whether it could be an existing C-Corp or newly formed one. Can it be a 100% share holder, 49%, or what.

Once again, I will ultimately do whatever is typical - but I am also interested in knowing what is possible.

7

Anything over 49% is a prohibitted transaction. If you are principal employee or have too much control over the company, the IRS will consider it a prohibitted transaction. There is case law at the 17% ownership level.

You cannot do any work involved with the investment. That’s why real property is so difficult. It is possible, but the head ache factor is just so high.Tax liens, promissory notes, private placements, hard money loans, etc. are what is typically done.