Self Directed IRA's

[tgaspard 0]

Has anyone tried doing a sandwich lease option with a self directed IRA. Is this even possible?

[Dave T 0]

This isn't really a tax question, but perhaps more of a legal question. I guess you first have to ask yourself why you would want to do this anyway since you can not remove the income from the IRA without incurring penalties and ordinary income taxes on your early withdrawals.

 

The IRA will have to fund the deal, receive the income, and pay your rent from the trust. It is also likely that the IRA trustee will have to sign the contracts on both sides of the sandwich.

 

If you have a self-directed IRA, then take this question to your IRA trust administrator. I have my doubts about their concurrence in this investment strategy, but you never know if they will approve until you ask. The most likely response is that this strategy constitutes operating a business, and that is not a permitted activity for your trust.

[mpine 0]

http://www.trustetc.com/

 

I believe this is what he is talking about

 

Mike

:ph34r:

[tgaspard 0]

Yes, I also ran across the "Equity Trust" web site MPINE. Here is something directly from their FAQ page concerning real estate investments in the IRA.

 

"May I use funds from my IRA to renovate property in order to sell it at a higher price?

 

Yes. Your IRA must pay all expenses associated with a property that it owns including the renovation of the property. All profits that associated with your IRAs investment in a renovated property must be remitted to Equity Trust Co. for the benefit of your IRA."

 

 

I've read elsewhere of people flipping property (with a little rehab) in an IRA and since a sandwich is sorta like a flip I was wondering if anyone has tried to do one of these kind of deals in a self directed IRA? The big advantage of course is no taxes to pay as long as it in in the IRA.

[Dave T 0]

Does the FAQ address Unrelated Business Income taxes? A sandwich lease activity is an active income activity (a business) and not a passive income activity (such as investment rental property). Conducting a business within an IRA may be a prohibited activity, and at the very least would bring UBIT into play.

 

I have the same concerns with a flip strategy. Income from property flipping is active income, normally reported on Schedule C and Schedule SE (in the absence of a separate business entity). Conducting a property flipping business within the IRA, if not a prohibited activity, would also bring UBIT into play.

 

The IRA custodian would have to answer this question and satisfy the conditions under which the IRA could participate in these activities. In the end, if a strategy to participate sandwich leases or property flips could be developed for IRA participation, all deals would have to be funded from within the IRA and all income and profits would have to stay within the IRA to enjoy tax deferred status.

 

If the purpose of sandwich leases and property flipping is to generate current income for immediate living expenses, investing from within the IRA will not do it for you.