All Forum Posts by: Eric Tomlin

@Linda Weygant and @Steven Hamilton II

We created a multi member IRA LLC for the sole purpose of purchasing land. There are no buildings on it. We have had no income and the only expense we have had is property taxes but we don't need to expense those because they are very minimal. Because this is all new to us, we filed a 1065 last year. But, while filling out our 1065 this year we came upon what

@Steven Hamilton II is saying above, and it sounds like we do not have to file. @Linda Weygant, do you think because we filed last year, we should continue filing? 

Also, inside our IRA LLC is a Roth and a Traditional. In 2018, we did a conversion of 20% from the Traditional to Roth. With this added complexity and info, do either of you think we should file a 1065 for 2018?

Thanks in advance!

@Arlan Potter Yes. I sold it for $10k more than I paid for it, even though it was fire damaged. But it wasn't a "total loss". One unit was completely destroyed, but the other two units were damaged. 

I have no other rental units to spend money on. Are there other "projects" I could invest in to reduce my tax burden? Thanks!

Good day experts. I am trying to understand the tax laws and determine my tax liability for a rental property that I have sold in 2018. The uniqueness of this transaction is in the fact that the property suffered a fire, and I collected insurance proceeds, but sold the house "as-is" after the fire, putting minimal money into the property from the insurance proceeds.

Based on what I have read about taxes on the sale of rental homes, I'm nervous that I am going to be looking at a hefty tax bill. I will outline my interpretation of what I have read below, in the hopes that someone here will tell me that I am waaay off and my tax liability will be much less. So, here goes...

Assumptions:

1) Sale price (minus) adjusted basis = taxable gain

2) Adjusted basis = Orig purchase price (plus) improvements (minus) depreciation (minus) insurance collected

Therefore:

$190,000 Purchase price in 2000

+ $6,000 New roof

-$108,000 Depreciation ($6k x 18 years)

-$200,000 insurance from loss

+ $17,000 improvements after loss

-$95,000 Adjusted basis

Sale price – adjusted basis = taxable gain

$200,000 – (-$95,000) = $295,000

$295,000 * 15% = $44.250

So my main questions are as follows:

1) Is my logic sound?

2) Is it possible to have a negative Adjusted Basis? And if so, is it actually added to the sale price?

3) What strategies can I take to reduce my tax burden?

4) Can I subtract the 10% paid to my Personal Adjuster from the total insurance payment amount?

Thank you all soooo very much in advance for any info you can share with me on this subject. I'm not sure that my heart or my wallet can handle such a tax hit.

-Eric

Good day experts. I am trying to understand the tax laws and determine my tax liability for  rental property that I have sold. The uniqueness of this transaction is in the fact that the property suffered a fire, and I collected insurance proceeds, but sold the house "as-is" after the fire, putting minimal money into the property from the insurance proceeds.

Based on what I have read about taxes on rental homes, I'm nervous that I am going to be looking at a hefty tax bill. I will outline my interpretation of what I have read below, in the hopes that someone here will tell me that I am waaay off and my tax liability will be much less. So, here goes...

Assumptions:

1) Sale price – adjusted basis = taxable gain

2) Adjusted basis = Orig purchase price (plus) improvements (minus) depreciation (minus) insurance collected

Therefore:

 $190,000           Purchase price in 2000

+ $6,000             New roof

-$108,000           Depreciation ($6k x 18 years)

-$200,000           insurance from loss

+ $17,000           improvements after loss

-$95,000            Adjusted basis

Sale price – adjusted basis = taxable gain

$200,000 – (-$95,000) = $295,000

$295,000 * 15% = $44.250

So my main questions are as follows:

1) Is my logic sound?

2) Is it possible to have a negative Adjusted Basis? And if so, is it actually added to the sale price?

3) What strategies can I take to reduce my tax burden?

4) Can I subtract the 10% paid to my Personal Adjuster from the total insurance payment amount?

Thank you all soooo very much in advance for any info you can share with me on this subject. I'm not sure that my heart or my wallet can handle such a tax hit.

-Eric

Thanks guys. I kind of thought that might be the answer. The tricky part is that the piece of land in question is in Belize, where the real estate market is very lightly regulated, to say the least. It's kind of like the wild west down there. LOL! I suppose that could work in my favor as I could probably pay a local appraiser to value the property at whatever I want it to be worth. I'm joking, of course. Im not even sure if their appraisers down there are even licensed. I know the real estate agents aren't even licensed. And that's no joke.

Good evening pros!

I have an LLC funded by two SDIRAs (1 traditional, 1 ROTH). My plan is to convert 20% of the traditional to ROTH each year, so that at the end of 5 years, the LLC will be wholly owned by the ROTH.

As part of the process of the conversion, my custodian requires valuations for each of the IRAs. Seems simple enough, but....each IRA contains some cash, along with a percentage of a piece of undeveloped land that I bought with the money from the IRAs.

So my question is this: who should I be looking at to sign the valuation forms? A CPA would understand the IRAs, but would have no idea what the land is worth. A real estate agent would know value of land, but not understand (or be comfortable with) the IRA piece of the puzzle.

Thanks!

Eric

Hello,

I am wondering if anyone knows if every IRA LLC needs to have a transaction reviewer? We had a multi member IRA LLC created last year. Now, in addition to the IRA quarterly maintenance and filing fees we keep getting emails stating that we need to pay a yearly fee for them to be our transaction reviewer. The language is weird as well, as the email states: each self-directed IRA LLC is required to have a transaction reviewer, as per article 2 of your LLC Operating Agreement. A Transaction Reviewer can be an attorney, CPA, or accounting firm. Although there is no regulatory requirement that you consult with your Transaction Reviewer periodically, it is nonetheless a regulatory requirement of the structure, and not an option.

Does anyone have any experience with this?

Thanks!

@Brian Eastman

If I had the funds laying around to buy the land outright, I would. But since I don't - and I don't want to take out a loan to buy the property - I figured why not use a portion of my retirement portfolio to buy it?

1) The purchase is first and foremost an investment. I intend to buy and hold the land, and do nothing to it for at least 5 to 7 years. At that point, I will re-evaluate what I do with it (as one would do with any investment).

2) I have no intention of building on or improving the land while the LLC is owned by the SDIRA. So there is no risk of prohibited transactions.

3) Once the LLC is fully owned by the ROTH IRA, if I decide that I want to build/live on the land, I can take the land as a distribution tax free. Then it is mine to do with as I wish.

4) Other than minor expenses of setting up the LLC, I don't see how this is "expensive". Can you elaborate? Is there some cost aspect that I am simply missing out on?

Thanks! I love getting input from many sources (as opposed to someone who just "yes-es" me to make me happy.

@Brian Eastman

I am in a similar boat as @Patrick Plummer with regard to a multi-member LLC funded by two SDIRAs (one traditional, one ROTH). In my case, both SDIRAs belong to my wife, if that makes any difference. We have also been told that if we needed more money in the LLC, we could make additional contributions to the SDIRAs in the proportion of the LLC ownership of each SDIRA. I had seen this thread previously, so I asked the attorney specifically about this and he said that according to IRC 4975(d)(9), and because there is no actual financial benefit to either IRA (or the IRA owner), that this is perfectly acceptable, and that he has set up many LLCs in this manner. Do you disagree that 4975(d)(9) exempts the IRAs from being a DP to the LLC? Is there any code that outlines the true rule in this case, or are we dealing with one of those situations where it simply hasn't been ruled on yet? This is fascinating to me, especially because two educated people seem to have such strong opinions on each side.

On another note (and as an explanation as to why I want to set up my LLC this way), please look at my plan below. Please feel free to let me know if you see any pitfalls, or areas where I could/should do something differently:

Here's my plan (at a high level):

1)Open a self-directed IRA (funded by means of a traditional pre-tax IRA rollover)

2)Open a self-directed ROTH IRA (funded by after-tax cash contributions)

3)Open an LLC

i)Using a single LLC means I will not have to change the title of the property as ownership of the LLC shifts from the traditional to ROTH SDIRA (more on that below).

     ii)If I bought the property with two single member LLCs, the percentage of ownership would have to be listed on the title. The percentages will change as I move the investment into the ROTH

4)Direct the IRA custodian to invest the SDIRA and ROTH SDIRA into the LLC

i)Custodian of both SDIRAs will write checks to the LLC

ii)I will take the checks and deposit into a checking account in the name of the LLC

5)Identify/purchase a piece of property by writing a check from the LLC bank account

i)Property will be owned by, and titled in the name of, the LLC

     ii)At this point, I cannot personally benefit from the property because it is owned by an entity that is funded by my SDIRAs. To benefit in any way from this property at this point would be considered a "prohibited transaction"

6)Over the next 5 (or so) years, I will transfer the SDIRA into the ROTH SDIRA

     i)Each year, I will have to pay taxes on the amount of SDIRA I convert into ROTH SDIRA

     ii)This allows us to spread the tax burden over a several year span as opposed to getting hit with a big tax bill all at once.

7)Once the SDIRA is fully converted to ROTH SDIRA (and wife is at least 59.5 years old), she can take the property as a distribution from the ROTH IRA without any tax consequence.

I know this was a bit long. I really appreciate your opinion as I am trying to find a consensus among the many opinions I have been getting.

William H. Hi there. Hope your trip to Belize went well. We are getting very close to pulling the trigger on a piece of raw land on Ambergris Caye and would appreciate an attorney referral if you have one. Thank you.