Self Directed IRA Question

[Charles Wilson]

I need some help.  Ok here is the scenario.  I purchased a mortgage note with in my SDIRA the note turned non-performing.  I foreclosed on it. I am thinking this means the property is now owned by my SDIRA. I want to take the property out of my SDIRA.  Let the property be owned by my S-corp so that I can borrow money to do rehab.  I know that if I borrow the money while it is in the SDIRA I will be subject to the UBIT tax.  

My plan for the house is to fix it up, create a note to get the cash back to pay off rehab money that was borrowed, get the house rented, sell to turn key investor and make a profit.  All done using the S-corp for the tax advantages.

So my question is how do I remove the house from my SDIRA.  I am over the 59 1/2 mark so there will not be the 10% penalty.  

Thank you in advance

Charles

[Brian Eastman]

@Charles Wilson

While you could distribute the property from the IRA to yourself personally as described in the prior post, that probably does not make sense.

Have the IRA borrow the funds. The impact of UBIT (actually UDFI, which is a subset of UBIT) will only apply to the profits that are associated with the use of debt-financing. The tax cost will certainly be less than the tax cost of the distribution of the full property.

Alternately, the IRA could joint-venture with another investor. In this case, the IRA would be trading equity in the property with another party in exchange for capital that party brings to the table. When you complete the rehab and sale, you then split the profits between the IRA and that other party. There would be no tax implications to you or the IRA in this case, which might mean the lower overall return due to splitting profits actually comes out as a higher net return. The joint venture party in this situation could not be you, your business or any other disqualified party to the IRA.