Does it make sense to use leverage in a Self-Directed IRA

[Michael Lauther]

Given the UBIT assessed by IRS when if ever does it make financial sense to use leverage to increase the return on rental property?

Using this leverage will give investors using their IRA the ability to participate in more expensive markets. There are several lenders who will offer non-recourse loans at competitive rates.

[Kevin Amolsch]

I know you addressed Bill but I think I know the answer to this one. :-)

You will only be taxed on gains that were created by the use of leverage. So you would calculate the total profit and seperate that profit into what was made with your downpayment and what was made becuase of the loan. You only pay taxes on the portion that is tied to the loan. Yes depreation is used to offset the taxes but like any other deal it will lower the basis and be recaptured when you sell.

I am not a CPA but use leverage in my IRA and this is how it was explained to me.