Rental Property Investor · WY · Member since 2016 · 87 posts · 51 votes
It's my understanding that someone can not use there self-directed IRA to benefit their direct family. In other words, I couldn't use my self-directed IRA to put a down-payment on a property that my brother will use for a flip or buy/hold.
Here's my question: If my parents use their self-directed IRA to buy, rehab, and sell property, could they sell it to my business?
My father would like to get into some self-directed IRA real estate investment but doesn't have the knowledge or desire to manage the projects. I'd like to help him find and rehab the projects and then purchase the product at a mark-up that benefits he and I.
No. A brother is not necessarily a disqualified person but parents are. (If my elementary school English teacher could see that sentence she would throw a fit. However, legally correct so I am going with it. Yikes, there's another one!) See this IRS FAQ for more info.
First it is prohibited for the IRA owner to rehab his IRA owned property. Second, flipping property inside an IRA is subject to Unrelated Business Income Tax (UBTI). Third, selling the IRA owned property to your business would fall under the following prohibited transaction rule.
Sale, exchange, or leasing of property between a plan and a disqualified person.
Here the plan is your parent's IRA, and the disqualified person is your business because it is your father's IRA. To lean more about the IRA prohibited transaction rules, see the following: