SDIRA year end taxes.

[Richard DiGirolamo]

I hired a CPA to handle my year end taxes and am not sure if I was given good info from him.

He advised me that I did not have to file anything for my SDIRA that has 2 properties in it. Is this correct? Seems weird to me. Thanks

[Brian Eastman]

@Richard DiGirolamo

In most cases, holding passive, un-leveraged rental properties will not generate a tax reporting requirement.

Rental income is passive in nature. An IRA receiving passive income from rents treats that income much like it would passive dividends on a public stock investment. The gains are tax-sheltered inside the IRA.

If leverage such as a mortgage is used, then the IRA will be creating Unrelated Debt-Financed Income (UDFI) and will have a tax filing obligation.

If the IRA is receiving income derived from an active trade or business as opposed to passive rents, that income could be deemed Unrelated Business Taxable Income (UBTI) and will require a tax filing. In real estate, active businesses are flipping, spec home development, and "services" provided via real estate such as hotels, short term rentals, self-storage, and adult care facilities.

In either case, the IRA, not you, is the taxpayer, and will file a trust return using form 990-T.

So, if your CPA has all the facts, he could be right.  The above should help you to help your CPA ensure they have all the pertinent facts.