UDFI/UBTI, paperwork etc for SD IRAs

[Jayman Petel]

Hi,

Looking for advice (dos/don'ts) around investing from a Selfdirected IRA into a RE private LLC that is leveraged.

It would be great to hear from folks who have done above mentioned investments and their experiences with filing taxes etc.. and experiences/opinions on whether it is worthwhile going along this path considering the taxes, paperwork and/or other headaches.

Also are the corresponding rules different between a Traditional IRA and a ROTH for an above mentioned type of investment?

Thanks

[Carlos Flores]

I'd take a closer look at the ownership structure. If your IRA LLC is merely buying shares of another LLC, then your IRA is subject to UBIT not UDFI. Doesn't matter if the other LLC is using leverage or not. UDFI comes into play when the IRA LLC directly takes on debt to purchase real estate. That said, a solo401k is also subject to UBIT if it buys shares of an LLC. A solo401k trust must buy the RE in it's own name to be exempt from UDFI if using leverage.