Flipping Houses in a Self Dircted IRA

[Bill Krenz]

I’m looking to flip some house with my self directed Ira. I will loan the money from a private lender through my self directed account. Seeing what the proper way to set it as for ubit tax if that applies and how people structured something like this before. Just looking for some feedback. Thanks Bill.

[Brian Eastman]

@John Underwood

Your post is entirely off the mark, unfortunately.

Firstly, as I noted above, lending generates passive interest income.  While @Bill Krenz perhaps inappropriately used the term flip, flipping is not actually what he is doing in an IRA.

Flipping creates trade or business income. This is taxable to both IRA and Solo 401(k) plans as Unrelated Business Taxable Income (UBTI).

A Solo 401(k) is exempted only from taxation on Unrelated Debt-Financed Income (UDFI) when it uses debt-financing such as a mortgage to acquire real estate.  This exemption from UDFI in fact only applies in the very narrow scope of debt-financed real property.  Other forms of debt-financed income such as margin trading in stocks are still considered taxable to a Solo 401(k).