Partnering with your own self directed IRA to purchase land
Oxford, MA · Member since 2016 · 15 posts · 0 votes
Hello everyone,
Knowing that these can be very muddy waters at times, my wife and I have been struggling through the IRA real estate investment information available on the internet. It is plentiful, but not sure, sometimes, if what we read is true. We have read on a few occasions that it is possible to partner with your own SDIRA (by adding personal non tax free/deferred funds) in order to come up with the total needed to buy a piece of real estate. This money would still be separate, ex. 50 % paid with check from IRA and 50% paid with check from my checking account. Moving forward everything would again stay separate. Does anyone have knowledge or experience with this?
Thank you and everyone for sharing their experiences, ideas and knowledge on this site.
Eric
There are a couple of ways to invest both your personal and IRA funds in real estate.
Invest in Real Estate Under a Tenancy in Common (TIC)
Under this method, title is taken in both the IRA owner's name and in the name of his or her IRA. Following is an example on how title to the property is taken assuming the name of IRA owner's name is Jim Brown.
Example: 30/70 split between Jim Brown and his IRA
How the property purchase is recorded: Jim Brown, an undivided 30% interest and IRA Services Trust Company CFBO Jim Brown , an undivided 70% interest.
Compliance Notes
Invest in Real Estate Using a LLC
There are a couple of ways to invest both your personal and IRA funds in real estate.
Invest in Real Estate Under a Tenancy in Common (TIC)
Under this method, title is taken in both the IRA owner's name and in the name of his or her IRA. Following is an example on how title to the property is taken assuming the name of IRA owner's name is Jim Brown.
Example: 30/70 split between Jim Brown and his IRA
How the property purchase is recorded: Jim Brown, an undivided 30% interest and IRA Services Trust Company CFBO Jim Brown , an undivided 70% interest.
Compliance Notes
Invest in Real Estate Using a LLC
I understand the property cannot be purchased or sold to a disqualified person. However, can the property be sold to a "friend" who then deeds/sells back to the person?
That cannot be done. The friend would be viewed as a "straw man" by the IRS, and they would see this as a transaction between the IRA and the disqualified party.
The strategies outlined above are an interpretation that is largely accepted within the tax planning community. They are not, however, something that the IRS rules specifically outline or condone, and there is not much in the way of case law to lean on here.
There are several ways that such a transaction could still be viewed as prohibited by the IRS, such as if either party to the transaction did not have sufficient capital to execute the deal on its own, and was therefore being enabled to engage in the transaction due to access to the disqualified party funds.
A LLC created in partnership between yourself and your IRA would need to file partnership tax returns at both the state and the federal level. The IRA would not have a tax liability for the K-1 income it receives, but the partnership itself may be taxed in certain states.
Bottom line is that this is an area where advice provided over the internet is worth exactly what you paid for it. I strongly recommend you discuss such a strategy with a tax attorney or CPA who is specifically familiar with ERISA tax law before considering such a strategy.
That cannot be done. The friend would be viewed as a "straw man" by the IRS, and they would see this as a transaction between the IRA and the disqualified party.
The strategies outlined above are an interpretation that is largely accepted within the tax planning community. They are not, however, something that the IRS rules specifically outline or condone, and there is not much in the way of case law to lean on here.
There are several ways that such a transaction could still be viewed as prohibited by the IRS, such as if either party to the transaction did not have sufficient capital to execute the deal on its own, and was therefore being enabled to engage in the transaction due to access to the disqualified party funds.
A LLC created in partnership between yourself and your IRA would need to file partnership tax returns at both the state and the federal level. The IRA would not have a tax liability for the K-1 income it receives, but the partnership itself may be taxed in certain states.
Bottom line is that this is an area where advice provided over the internet is worth exactly what you paid for it. I strongly recommend you discuss such a strategy with a tax attorney or CPA who is specifically familiar with ERISA tax law before considering such a strategy.
Thank you Brian for answering.