Self-Directed IRA LLC as a partner in an investment

[Dave Versch]

Hi. I currently do all my real estate investing through my Self-Directed IRA LLC. Consequently, I don't need to report my income since it all goes back into the IRA. Up until now, I've been investing on my own, but I'm considering partnering with someone on a flip. Initially my thought was that we would form a new LLC for the duration of the flip, and that my Self-Directed IRA LLC would own 50% of it, and he (or his entity) would own the other 50%.

My question is, how would this effect my tax situation, if at all, and what extra filing would I need to do with the IRS? Also, assuming that we dissolve the LLC after we flip the property, who does the filing, and is it done at that time or in April with the rest of my tax return(s)? Obviously I'm a little confused about this. Any experienced guidance would be greatly appreciated.

Thanks,

Dave

[Brian Eastman]

@Dave Versch

You can do this two ways.

Your IRA LLC and the partner can joint venture and vest title as tenants-in-common.

Your IRA LLC and the partner can form a LLC for the project.

There are advantages and disadvantages to both approaches.  Best to speak with an attorney for the specifics relative to your intended transaction and state.

If you form a partnership LLC, that LLC will need to file a federal partnership return and likely a state return as well. The K-1 to your IRA LLC will go in a file drawer at the federal level. Some states tax partnership income even if the partner is exempted.

If the project is a flip, and you do this on a regular or repeated basis with your IRA LLC, then the IRA has exposure to UBIT. Speak with your IRA LLC provider and/or your CPA on that topic.