Quitclaim Deed Transfer for Cash Purchases in SDIRA: Yay or Nay?

[Marc M.]

Context: Detroit, SFH tax-foreclosures...properties ranging in value from $3K to 30K....no mortgage financing, only cash purchases between investors or investor to occupant / tenant.

Questions: Are there any legal issues with quitclaiming a deed from a tax foreclosure property to another person (investor or occupant)? Since this wouldn't require traditional underwriting, ie: no mortgage financing involved, are there any restrictions in cash-purchases of real estate where title is conveyed not by a warranty deed but with a quitclaim deed? And if this is done inside a SDIRA, will it trigger any UBIT if the transfer occurs too quickly after the acquisition of the property and considered wholesaling?

Example: I purchase a house for $1000 in a tax auction using my SDIRA and sell the property for $5000 a few months later and transfer ownership through a quitclaim deed. Proceeds go into my SDRIA, and repeat ;-)...no UBIT triggered because I'm not rehabbing and flipping....just acquiring and selling passively at arms length. My IRA LLC is off the hook legally because title has been transferred to another party. Do this sound right?

[Brian Eastman]

@Marc M.

The IRS will look at the facts and circumstances, and judge whether the activity is of a consistent enough basis and engaged upon in a manner that is similar in nature to commercial tax-paying businesses in the field.

You should consult with an ERISA attorney who can look at the entirety of your scenario and help you evaluate the threshold at which you may cross this line and have exposure to UBIT.

20-30 is a ludicrously high number of transactions.  I would think in the 3-5 per year at most, perhaps less if you also do this same kind of thing with after tax funds.